Kacper Pempel/Reuters Woman holds an EU flag during a pro-democracy demonstration at the Old Town in Warsaw
- European companies could benefit from President Donald Trump's escalating trade war, analysts at Citi wrote to clients.
- "Winning the trade war, albeit not from the sidelines anymore, remains a real opportunity for Europe," Citi said.
- European corporates can steal market share from American firms in markets like China, while also benefitting in bilateral trade agreements as US influence wanes.
- This could lead to both anger from Trump, and damage to the US economy.
As the growing trade war between the Trump administration and the rest of the world threatens to boil over, Europe and European companies stand to be the biggest beneficiaries - if they play their cards right.
That's according to analysts at Citi, who believe the burgeoning conflict provides "a real opportunity" for Europe.
Citi's weekly European economics note, compiled by a team led by Christian Schultz argues that rising tariffs put in place by the Trump administration could allow European corporates to gain a competitive advantage over their American counterparts.
"Winning the trade war, albeit not from the sidelines anymore, remains a real opportunity for Europe," the team wrote to clients late last week.
The team's thesis centers on two arguments.
First, the belief that while tariffs will hurt the businesses of European companies in the US, it will allow them to compete more aggressively with American firms in markets like China.
Second, that the EU can take advantage of the USA damaging its international reputation and become the global trading partner of choice for major economies.
"European companies compete with US firms in key markets such as China and could win market share at the expense of their American counterparts," Citi's analysts wrote.
As the US is placing tariffs on Chinese goods, and China has retaliated in kind, it is likely that Chinese businesses would be more inclined to do business with European companies. This in turn would boost the profitability of major European corporates, which could also have an overall positive impact on gross domestic product.
That same favorability, Citi notes, would likely impact European Union negotiations over trade with economies all over the world. If the US looks as though it is closing itself off from the rest of the world in terms of trade, it is unlikely that states will be keen to strike deals with them.
By positioning itself as a bastion of free trade, the EU could benefit by gaining favorable terms in trade partnerships.
As Citi puts it: "The EU's bargaining power in free-trade talks with third countries rises as the US is no longer an attractive alternative partner."
If these outcomes were to materialize, there would likely be two major consequences.
First, it is likely that European businesses stealing market share from US companies would have a negative impact on those companies in terms of profitability, but also the wider US economy, and potentially even global growth.
"In the event of a further noticeable deterioration in trade tensions that could curtail the pace of growth in global trade, our external demand forecasts would likely be revised down," Citi's team wrote.
Secondly, the move would likely anger President Trump, potentially leading to an even greater escalation of the conflict. Trump has not responded well to perceived slights on his policy, with his angry reaction to news that Harley Davidson would move some production out of the USA as a result of his tariffs a prime example.
Harley Davidson's move represented a slap in the face for Trump. The president had hosted company executives at the White House and repeatedly praised the company for building its motorcycles in America.
Trump has in the past shown willingness to punish those he perceives to slight him, so European companies benefitting from the tariffs could face a similar treatment, possibly being on the end of even more tariffs in the USA.