Regulators and politicians believe Donald Trump’s second term could significantly affect global trade. In his first term, Trump introduced tariffs on important industries in both Europe and China. If Trump brings back his protectionist trade policies, Europe may face even greater challenges this time, according to analysts quoted in a Business Insider (BI) report.


Tariffs: Definition and Purpose


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A tariff is a tax or duty imposed by a government on imported or exported goods, typically used to:


1. Protect domestic industries by making foreign goods more expensive, encouraging consumers to buy locally produced items


2. Generate revenue for the government


3.  Regulate trade by controlling the flow of certain goods into, or out, of the country


Tariffs can vary depending on the type of goods and their country of origin.


Donald Trump's Second Term Shock: Trade Impact


The world woke up today to the news that Trump had won the 2024 election. For politicians and regulators across the globe, this raises concerns about how a second Trump presidency could affect international trade.


During Trump’s first term, his ‘America First’ agenda led to trade conflicts with both China and the European Union. He imposed tariffs on certain goods, which resulted in retaliation from China. China’s response sparked a trade war between the two countries, with each side slapping hundreds of billions of dollars in tariffs on each other.


This time around, experts have told Business Insider that Trump’s policies could have a significant impact on Europe. Bilal Hafeez, the CEO of Macro Hive, a company that researches global markets, in the BI report, says that China has already dealt with major tariffs and has learnt how to manage them. However, Europe has not faced such tariffs yet. If Trump introduces global tariffs, Europe could be seriously affected.


What Are Trump’s Suggested Tariffs?


Trump described ‘tariff’ as his favourite word during a speech at the Economic Club of Chicago in October, according to The Wall Street Journal. In his first term, Trump often criticised the EU for its trade practices, claiming it was “very, very tough” for American products to enter the European market. Trump placed tariffs on important European industries — including steel, aluminium and some luxury items.


During his campaign, Trump promised to apply a 10% tariff on all imported goods — and even suggested tariffs of over 60% on products from China. According to what BI quotes Nigel Green, CEO of the financial advisory firm, deVere Group, Europe is especially at risk from Trump’s tough trade policies for two key reasons:


1. Many European companies, particularly those in such industries as luxury goods, automotive and technology, heavily depend on the US market. Tariffs would increase costs for these companies, reduce their sales in the US and lower their overall value, explained Nigel Green. Green pointed out that Europe was already dealing with several economic and political issues, such as high energy prices, slow economic growth and geopolitical tensions. A new trade war with the US under Trump’s presidency could make these problems worse, Green feels.


2. Experts also cautioned that, if Trump cuts off financial aid to Ukraine, Europe may have to spend more on the conflict.


Simultaneously, the continent would experience the impact of tariffs on China, which could result in an influx of cheaper goods being redirected back into the Chinese market. Pharmaceuticals, cars and chemicals are the most at risk from tariffs because they make up a big part of the EU’s exports to the US, according to Morningstar DBRS. If Trump raises tariffs on foreign goods, it increases the chance of other countries fighting back. This could slow down the global economy and raise prices. Tech companies, major consumer brands, luxury labels and car manufacturers that earn a large chunk of their revenue from Europe could be seriously affected, according to Green.


Also Read: Shift In Allegiances: Trump’s Unexpected Appeal And Harris’s Dwindling Prospects


While Trump’s inauguration is still a few months away, the election results have already made European policymakers quite anxious. Before the election results were announced, European stocks that were at risk from US tariffs had already dropped sharply and were performing worse than the broader market.


On Wednesday morning, as the results trickled in, European markets initially followed the positive trend of US futures and went up. However, these gains started to fade as the day went on. Later, European Commission President Ursula von der Leyen congratulated Trump in a post on X. She stressed the importance of cooperation between Europe and the US, referring to them as “more than just allies”.


Trump 2.0: What Are The Likely Global Impacts?


Beyond Europe and China, Trump’s proposed tariffs could significantly affect such regions as Australasia and Latin America. Steven Kennedy, Australia’s top official in the Treasury Department, during a senate committee hearing, as reported by News.com.au, said on Wednesday that he anticipated these tariffs would have an impact on Australia’s economy. He thinks the steep tariff rise will affect both the US and Chinese economies and would also have knock-on effects for Australia.


In Latin America, rating agency Fitch warned last week that new tariffs under a second Trump Administration could have a serious impact on the US’s closest neighbour, Mexico, whose economy is heavily dependent on trade with the US, its largest economic partner. According to Fitch, these tariffs could reduce Mexico’s GDP.


 


(Girish Linganna is a Defence and Aerospace Analyst based out of Bengaluru. He is also the Director of ADD Engineering Components, India, Pvt. Ltd, a subsidiary of ADD Engineering GmbH, Germany. The views expressed in this article are of the author only.)