What Trump 2.0 would mean for European growth

A second Trump presidency could have a moderate impact on European growth based on our simulation of his proposed policies. In the most extreme protectionist scenario, the eurozone economy would be 0.4% smaller than in our baseline forecast by 2029.

What you will learn:

• Our estimates are based on two scenarios. The first, a ‘limited Trump’ scenario, assumes targeted rises in tariffs, limits on immigration, and fiscal loosening. These policies result in a very small hit to European growth. The second, a ‘full-blown Trump’ scenario, includes more aggressive measures on all fronts, leading to a more negative impact on European growth.
• While higher tariffs reduce trade, expansionary fiscal policy in the US causes the reverse effect through stronger external demand for European goods. In the ‘limited’ scenario this is sufficient to partially offset the impact from tariffs. But in the ‘full-blown’ scenario, the negative hit to US growth means a large fall in European exports.
• The impacts of a second Trump presidency would be uneven across countries, with the most open economies generally hit harder. GDP in Ireland, the Netherlands, and Sweden would be cut by 0.6%; at the other end of the spectrum, Italy and Portugal would be less affected. Among the largest economies, Germany would suffer the biggest drop in GDP, with the economy 0.4% smaller than in our baseline by 2029.
• Despite the imposition of higher tariffs, we think the impact of these scenarios would not be inflationary for Europe, as reduced demand and lower commodity prices would more than offset higher import costs.

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