The Bureau conversation discussed the outcome of the US presidential elections and the likely political and economic implications of Donald Trump’s return to the White House. Most participants did not want to engage in a debate how exactly a twice-impeached convicted felon with highly questionable character traits managed to come back in command of party and country. It was generally felt, though, that the handling of immigration and the economy after a bout of multi-decade high inflation was battering the incumbents’ approval ratings, and the democratic candidate’s campaign was unable to overcome this negative groundswell; eventually, a majority of American voters were clearly not in the mood for Kamala Harris’ more hopeful, optimistic message about the “promise of America”.
Thus, the debate quickly turned to question what to expect from Trump 2.0. With almost no disagreement, participants were convinced that the new Trump administration will act with little restraint delivering along the outlined political and economic agenda (“a promise is a promise”). If followed through, the pledge to slap a 60% tariff on goods from China and up to 20% tariffs on goods imported from all other countries would almost inevitably result in an all-out trade war as other countries and blocs will be forced to retaliate and to impose their own barriers to avoid being drowned in a flood of redirected Chinese exports. Even when considered as a “maximalist” threat that would be layered in gradually and could be altered during talks with trading partners, participants felt that the EU will need to brace for a significant deterioration in trade relations, with accelerating fragmentation particularly hitting strongly export-oriented sectors and nations.
On top of the associated direct economic cost, estimated to run up easily to 1% of GDP annually, the EU may also have to fill in, at least partly, on any funding gap if the US decides to decrease aid to the Ukraine. Thus, already strained public finances will face intense pressures, with many participants calling for the establishment of a new significant lending facility at the EU level as, in the words of one participant, “wars have always been debt-financed”. In support, participants pointed to the EU's significantly lower overall public debt burden compared to the US (Debt-to-GDP Ratio of some 80% in the EU compared to 120% in the US), and noted that the tax policy proposals floated by Trump, if fully implemented, would raise the US public debt burden by an estimated 20 percentage points in the long-term.
Grave concerns were also voiced regarding the fight against climate change. Domestically, the Trump administration is expected to roll back climate regulation and environmental protection, to withdraw some funding for climate action under the provisions of the Inflation Reduction Act, to end EV tax credits and to ramp up fossil fuel production. Internationally, Trump has promised to again pull out of the Paris agreement, and he may also withdraw the US from the UN Framework Convention on Climate Change, a potentially more impactful move that, if successful, would remove the US from participating in COP negotiations and global climate co-operation more broadly.
Several participants pointed out that financial markets are another area where US policies could lead to negative international spill-overs. Trump 2.0 has US bankers, private equity titans and other financial services executives salivating over the prospect of deregulation, a wave of new financial products and less aggressive administration oversight. A more relaxed attitude to challenging M&A transactions than allowed under current antitrust policies could also unleash a wider dealmaking spree that would boost earnings at investment banks and provide a fresh spur to the private equity industry. Globally, thus, top financial watchdogs have warned a Trump deregulatory push could rip apart already-fraying efforts to maintain a global set of rules for the financial system and weaken defences against another crisis.
The OECD global corporate tax deal was mentioned as another international arrangement put in peril by the Trump administration, possibly forcing the EU to find second-best solutions to prevent large multi-national companies paying less than a minimum effective tax rate of 15 per cent on their corporate profits worldwide.
The mass deportation of undocumented immigrants, another promise of the Trump campaign, will meet legal and logistical impediments; still, highly visible action to detain and deport undocumented migrants residing in the US on a large scale is likely to be implemented. Undoubtedly, this will put more wind in the sails of Europe's migration hardliners; and with anti-immigrant sentiment surging, the EU will probably not be immune to embrace formerly taboo approaches to crack down on migration.
Participants fully agreed that the European Union must be united and coordinate closely to deal successfully with the incoming Trump presidency, but many expressed a good deal of scepticism whether the EU will rise to the challenge. Concluding, the Chairman recalled Jean Monnet’s words that “Europe will be forged in crisis, and will be the sum of the solutions adopted for these crises”; and alluding to Antonio Gramsci he suggested to counter the pessimism of intellect with the optimism of will.
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