Why are the Europeans so excited about Trump victory?!
It was really interesting and even a little bit ridiculous to see the eToro feed buzz with euphoria after the results of the US elections were revealed. Most of the users on eToro are from Europe and Europe will be the biggest loser under Trump and yet it looks like he is even more loved here than in the US.
In reality though, this is one more example to show that the stock market and investors do not represent the state of society and economy. The investors are happy because the stock market is rallying, and they are short-sighted to see the long term impacts of the Trump’s policies on the US and rest of the world.
Three key promises from Trump which will hurt Europe are as follows,
Trump has promised to reduce spending by cutting military aid to Ukraine, essentially giving up Ukraine to Russia. This will lead to a horrible refugee crisis in Europe and will bring Russia to the border of the EU.
He will also cut contributions to NATO, forcing the EU countries to fend for themselves.
He wants to impose tariffs on imports such as German cars. This will hurt the already ailing economy of Europe.
As a side effect of this, Taiwan will also lose confidence on US and China will feel emboldened. EU will be forced on the negotiation table with a weaker hand against China and Russia. Ultimately, this will reduce the influence of US on the world and along with it the strength of the US Dollar. His promise of embracing crypto-currencies will only guarantee and further accelerate the decline of the USD.
Even stock investors should be worried for the long term prospects. Historical data shows stock markets perform worse under Republican policies. Cuts in government spending leads to job losses and low consumer demand. Tax cuts don’t really motivate consumers enough to boost the demand. Trump doesn’t have a concrete plan to address the debt crisis and the US debt is expected to grow even more steeply under Trump.
I know this is the worst case scenario. I understand that a lot gets said during election campaigns and not everything actually happens. Yet there is little reason for Europeans to be happy about Trump victory in the US in my opinion.
In the best case scenario, Trump is able to broker a lasting peace agreement between Ukraine and Russia, in a way that avoids a refugee crisis. He is able to promote investments in innovation by reducing regulations for M&A and IPOs. He is also able to capitalize on the productivity improvements promised by AI and grow the economic output of the US.
I would think the best case scenarios is equally likely as the worst case and most probably we will stay with the status quo.
If anything, this is indicating an impending shift to the right in European politics.
I am not an expert on geopolitics. I don’t really know if common sense applies to geopolitics as well as it does to stock investments. I would love to hear your opinions on this. Please help me see what I may be missing in my analysis.