Former US President Donald Trump during a campaign event at Trump National Doral Golf Club in Miami, Florida, US, on Tuesday, July 9, 2024.
Eva Marie Uzcategui | Bloomberg | Getty Images
With markets in recent weeks cranking up their bets that Donald Trump will win the presidential election, Goldman Sachs economists say that another term for the former U.S. leader could have “profound implications” for the euro area’s economy.
“Our baseline estimates point to a sizeable GDP [gross domestic product] hit of around 1% with a modest 0.1pp [percentage point] lift to inflation,” Goldman Sachs’ Jari Stehn and James Moberly said in a note published Friday before the Saturday assassination attempt.
“Trump’s re-election would thus pose a significant downside risk to our otherwise constructive growth forecast for the Euro area.”
Trade policy uncertainty, added defense and security pressures, and spillover effects from U.S. domestic policies on, for example, taxes could impact Europe, they explained.
Trump says he was grazed by a bullet Saturday during an attempted assassination at a rally in Pennsylvania. The shooting left one attendee and the gunman dead, and two more attendees still in critical but stable condition.
Some analysts have suggested the events could boost Trump’s chances of taking back the White House in the U.S. election later this year, and certain assets have already rallied Monday with markets pricing in that possibility.
Even before Saturday, the likelihood of a second Trump presidency had risen following a poor performance from President Joe Biden in a presidential debate a few weeks ago. Goldman Sachs said in its note Friday that betting markets were assigning a probability of around 60% for a Trump win in November, with some reports over the weekend that this figure had risen again.
Trade tensions
Trump’s trade policy, and the uncertainty around it, could be one factor that impacts Europe’s economy, just as it did during his last presidency, analysts Stehn and Moberly said.
Trade tensions between the U.S. administration and the European Union surged during Trump’s last term. Tariffs on European steel and aluminum were introduced by the U.S., which led the EU to counter with duties on U.S. goods. There were monthslong concerns about whether other sectors like autos would see higher duties, which rattled market sentiment.
“Trump has pledged to impose an across-the-board 10% tariff on all U.S. imports (including from Europe), which would likely lead to a sharp increase in trade policy uncertainty, as it did in 2018-19,” the research note from the Wall Street bank said.
Such uncertainty historically has a significant, persistent impact on economic activity in the euro area, the economists said. In 2018 and 2019, uncertainty about trade policy reduced industrial production in the euro area by around 2%, they estimated.
Some countries like Germany are expected to be more heavily impacted as they rely more on industrial production, according to Stehn and Moberly.
Trade tensions could also lead to the euro area’s gross domestic product taking a hit, and while uncertainty about trade policy could see prices fall, higher tariffs could push them back up, according to the economists.
Meeting both the 2% requirement and potentially making up for at least some of the U.S. financial support for Ukraine could impact Europe’s economy, according to Goldman Sachs.
“European countries could therefore be required to fund an additional 0.5% of GDP of defence spending per year during a second Trump term,” the research note said, adding that growth from additional military spending is set to be modest.
Geopolitical uncertainty and risks could also emerge as a result of Trump’s defense policy toward Europe, and his stance on NATO, particularly if it raises questions about how committed the U.S. is to the military alliance, Stehn and Moberly explained.
Spillover from domestic policies
The third way in which Trump’s policies could impact the euro area economy is through U.S. domestic plans, such as tax cuts and less regulation.
“U.S. macro policy shifts during the first Trump term entailed significant spillovers into Europe via stronger U.S. demand and tighter U.S. financial conditions,” Goldman Sachs economists said.
Anticipated tax cuts in the U.S. could boost economic activity in Europe — but paired with other expected market shifts, the overall impact is likely to be limited, according to Stehn and Moberly.
“The net financial spillover, however, would likely be muted as we would expect the effect of higher long-term rates to be offset by a notably weaker euro, consistent with the post-election moves in November 2016,” they said.
Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago, speaks to the Economic Club of New York in New York City, U.S., April 10, 2025.
Brendan McDermid | Reuters
Business owners and CEOs are already stocking up on inventory, and some American shoppers are panic buying big-ticket items in anticipation of President Donald Trump’s tariffs. The sudden buying binge could cause an “artificially high” level of economic activity, said Federal Reserve Bank of Chicago President Austan Goolsbee.
“That kind of preemptive purchasing is probably even more pronounced on the business side,” Goolsbee told CBS’ “Face The Nation” on Sunday, adding: “We heard a lot about preemptive building-up of inventories that could last 60 days, 90 days, if there [was] going to be more uncertainty.”
Businesses stockpiling inventory and consumers accelerating their purchasing decisions — buying an Apple iPhone now, say, rather than waiting until the fall — may inflate U.S. economic activity in April and lead to a slowdown in the coming months, Goolsbee suggested.
“Activity might look artificially high in the initial, and then by the summer, might fall off — because people have bought it all,” he said.
Sectors affected by Trump’s tariffs, particularly the auto industry, are most likely to heavily stock up on inventory now before import levies on goods from other countries potentially rise further, said Goolsbee. Many car parts, electronic components and other big-ticket consumer items are manufactured in China, for example, which currently faces a 145% total tariff rate on goods imported to the United States.
“We don’t know, 90 days from now, when they’ve revisited the tariffs, we don’t know how big they’re going to be,” Goolsbee said.
Some U.S. business owners who buy goods manufactured in China say they already can’t afford to place rush orders on inventory. Matt Rollens, owner and CEO of Granite Bay, California-based novelty drinkware company Dragon Glassware, says he’s temporarily holding his products in China because paying the 145% levy would force him to raise consumer prices by at least 50%, likely drying up customer demand.
Rollens has enough inventory in the U.S. to last roughly until June, and hopes the tariffs will be rolled back by then, he told CNBC Make It on April 11.
Short-term uncertainty and financial pain aside, the Fed’s Goolsbee expressed optimism about the country’s longer-term economic outlook.
“If we can get through this, it’s important to remember: The hard data coming into April was pretty good. The unemployment rate [was] around steady full employment, inflation [was] coming down,” he said. “It’s just a desire of people expressing they don’t want to back to ’21 and ’22, at a time when inflation was really raging out of control.”
IN HIS LOVE of lucre Donald Trump can be crass. In their pursuit of efficiency, free marketeers can be, too. Consider the sale of citizenship. Most people dislike the idea of treating national belonging as a commodity. Yet about a dozen countries hawk passports and more than 60, including America, offer residency in exchange for an investment or donation. Its “golden-visa” scheme is cumbersome, under-priced and inefficient. On this point the president and the market agree.