How Will Trump's Economic Policies Impact Global Markets?

Donald Trump's victory in the presidential election on November 6, 2024, has sent shockwaves through global financial markets, leading to significant volatility and uncertainty. Following Trump's election, European markets reacted sharply; on November 18, 2024, Germany's DAX fell by 1.3%, and France's CAC 40 dropped by 1.5%. In contrast, Tokyo's Nikkei index rose by 0.5%, indicating mixed reactions across different regions [9c7b5e73].

Investor sentiment in Europe has been particularly affected, with the Stoxx 600 index trading at a 40% discount compared to the S&P 500. The euro is nearing parity with the dollar, signaling potential vulnerabilities stemming from Trump's proposed economic policies, including a blanket 10% import tariff, particularly targeting German exports [0eff9de2]. Analysts are concerned that these tariffs could significantly impact trade relations, especially with Canada, although some suggest that Canadian oil may be spared from these tariffs [9c7b5e73].

The ZEW survey has shown a decline in Germany's current situation index to -91.4 from -86.9, worse than expected, while forward-looking sentiment also fell to 7.4 from 13.1, missing the anticipated figure. Economists at Nomura project that Trump's policies could reduce Euro area GDP growth by at least 0.3 percentage points over 2025-26 [9f7d975e].

In the automotive sector, major companies like BMW, Mercedes-Benz, and Volkswagen are bracing for the financial fallout. BMW's CEO, Oliver Zipse, has emphasized the need to increase U.S. manufacturing to counteract the potential impacts of tariffs. Both Volkswagen and Mercedes are adjusting their production strategies to adapt to the new economic landscape [4f157692].

The implications of Trump's policies extend beyond Germany, as Hungary is expected to experience significant effects due to its strong trade ties with Germany. Nomura forecasts that Germany will be more affected than other euro area countries, with Central Europe exporting 20-30% of its goods to Germany, particularly in the automotive sector [4e099ed0].

French President Emmanuel Macron has raised alarms that Trump's economic policies could lead Europe into simultaneous trade wars with both the U.S. and China. He noted that Trump suggested imposing tariffs of 10% to 20% on all foreign goods, which would severely impact Europe's export-reliant industries [59a9bcad].

In the U.S., the dollar weakened against the yen and euro, reflecting market apprehensions regarding Trump's fiscal strategies, which could tighten monetary conditions and exacerbate inflation fears. Market analysts are particularly focused on the upcoming appointment of Trump's Treasury Secretary, which could further influence economic policies and investor confidence [9c7b5e73].

As the U.S. market capitalization now stands at $63 trillion—four times larger than Europe's—strategists predict that Trump's policies may force Europe to improve its economic attractiveness to retain investors. Major banks are already seeing the euro as vulnerable to Trump's tariffs, and the bond market indicates a widening gap between U.S. and German yields [0eff9de2].

Overall, the unfolding scenario presents a complex challenge for both German automakers and the broader European economy, with significant implications for international trade and economic relations. The interconnectedness of the U.S. and European markets highlights the potential for widespread repercussions stemming from these trade policies, particularly as the U.S. remains Europe's largest export market. In 2023, German auto exports to the U.S. were valued at 23.41 billion euros, while exports from Poland, Romania, the Czech Republic, Slovakia, and Hungary to Germany were worth 18.92 billion euros [4e099ed0][6d1720aa][9f7d975e].

Hüther's analysis underscores the importance of a narrative of modernization and investment enthusiasm for Germany's future, urging the CDU/CSU to avoid returning to past ideologies and instead focus on a sustainable future [9baf2da9].