If Trump wins re-election, the eurozone economy may be "seriously hurt"?

With Trump successfully dodging the gunfire, his odds of winning the 2024 U.S. election have risen. In a report last Friday, Goldman Sachs said betting markets see about a 60% chance of Trump winning in November, and some reports over the weekend said that number has risen again.

Goldman Sachs economists warned that if Trump wins another term, it could have "profound consequences" for the eurozone economy.

"Our baseline estimates suggest a sharp drop in eurozone GDP of around 1% and a modest increase in inflation of 0.1 percentage point," Goldman Sachs economists Jari Stehn and James Moberly said in a report published last Friday. "Thus, a Trump reelection would pose a significant downside risk to our constructive growth forecast for the eurozone."

They explained that uncertainty over trade policy, increased defense and security pressures, and spillover effects from U.S. domestic policies on areas such as taxation could all affect Europe.

Jari Stehn and James Moberly said Trump's trade policy and its uncertainty could be a factor affecting the European economy, just as it was during his last presidency.

During Trump's last term, trade tensions between the U.S. administration and the European Union increased. The U.S. has imposed tariffs on European steel and aluminum, leading the European Union to impose tariffs on U.S. goods. For months, markets have been concerned about whether tariffs on other industries, such as autos, would be raised, which has disrupted sentiment.

Economists say that historically, such uncertainty has had a significant and lasting impact on economic activity in the eurozone. Some countries, like Germany, are expected to be more severely affected because they rely more on industrial production, according to Stehn and Moberly.

Trade tensions could also cause eurozone GDP to take a hit, economists say, and while uncertainty about trade policy could cause prices to fall, higher tariffs could push them higher.

Trump is also expected to reduce or completely cut U.S. aid to Ukraine and signal that he will not help countries in the NATO military alliance that do not meet the 2% defense spending requirement. Goldman Sachs said that both meeting the 2% requirement and potentially making up at least some of the U.S. financial support for Ukraine could affect the European economy.

Another way Trump's policies could affect the eurozone economy is through domestic U.S. programs, such as tax cuts and reduced regulation.

Goldman Sachs economists said: "The shift in macroeconomic policies in the United States during Trump's first term has led to significant spillover effects on Europe through stronger US demand and tighter US financial conditions." According to Stehn and Moberly, the expected US tax cuts may boost economic activity in Europe, but combined with other expected market changes, the overall impact may be limited. Based on the above news, if Trump is really re-elected and introduces relevant policies, it may suppress the eurozone economy as Goldman Sachs expects, which may become a potential negative for the eurozone. Investors need to be vigilant about this.