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A European Macro Perspective Over the U.S. Elections

October 22, 2020 By Mircea Vasiu

With a little over one week left until the most important event of the year, macro traders look at the possible impact of the U.S. elections in the world. For Europe, the next four years are crucially important in its relationship with America. 

The reason is that since it took the helm of the White House, Trump created a lot of tensions in America’s relations with Europe. Threats of tariffs, blame of the Europeans not paying their share part of NATO contributions, etc., led to a tense relationship between the two largest economic blocs in the world.

What’s At Stake for Europe

One of the major themes during Trump’s administration was trade. Trade deals with China, neighboring partners and even Europe were attempted as Trump focused on reducing the trade deficit.

Truth be said, the European Union has run a trade surplus with the United States since 1994. Because a plus on one side reflects a minus on the other one, it means that the U.S. ran a trade deficit at the same time. Imposing tariffs is one way to reduce the trade deficit, but even so, many economists argue that in the long run, it comes at the expense of society’s welfare.

Nord Stream 2, the pipeline from Russia to Germany, is a sticky point between America and the European Union. On the one hand, America argues that it makes no sense that it is a NATO contributor and at the same time, other NATO members pay Russia for its gas. On the other hand, the European Union wants to reduce its dependency on importing gas from other parts of the world. However, the United States can easily impose its will by applying economic sanctions.

If Trump wins the White House, expect more on the same lines. One may even argue that knowing that the next four years are part of the last mandate, Trump may take an even tougher stance on Europe.

A Biden win is favored by the Europeans. The hope of “getting back to normal” remains, as Biden’s foreign policy will likely differ sharply from Trumps.

These are just a few macro perspectives related to the U.S. elections. If the first four years at the White House were dominated by trade deals, expect the next four to be the same, should Trump win a second term. On a Biden victory, it will take time to reverse some of his predecessor’s decisions.