The world prepares for a fresh era of tariffs under Trump 2.0

• Regulators and politicians worldwide expect Donald Trump's second term to have a major impact on trade.
• During his first term, Trump imposed tariffs on key industries in both Europe and China.

The world has woken up to the news that Donald Trump has won the 2024 election.

For politicians and regulators worldwide, that means facing the impact a second Trump presidency will have on trade.

During his first term, Trump's "America's First" policies led to trade disputes with China and the European Union, with tariffs imposed on certain goods.

China's retaliation triggered a trade war between the two nations, that saw them impose hundreds of billions of dollars worth of tariffs against each other.

This time around, analysts told BI, Trump's policies could have a particular impact on Europe.

"I think that China has already faced significant tariffs and has adapted, but Europe has yet to face them. So if Trump does implement his global tariffs then Europe would be hit hard," said Bilal Hafeez, CEO of Macro Hive, a macro market research firm.

Trump's proposed tariffs

"To me, the most beautiful word in the dictionary is 'tariff,'" Trump told an audience at the Economic Club of Chicago in October, The Wall Street Journal reported.

During his first term, Trump repeatedly accused the EU of unfair trade policies, saying it is "very, very tough" to get US products into the economic bloc.

He imposed tariffs targeting key European industries, like steel, aluminum, and certain luxury goods.

During his campaign, he pledged to impose a 10% blanket tariff on all imported goods and has floated tariffs of more than 60% on Chinese goods.

Europe is particularly vulnerable to Trump's aggressive trade policies for two main reasons, said Nigel Green, CEO of financial advisory firm deVere Group.

Firstly, many European companies, especially those in manufacturing, luxury goods, automotive, and tech, are deeply reliant on US markets. Tariffs would raise costs significantly for those companies and lower their market share in the US and their overall valuation, Green said.

He said that Europe is already facing a series of economic and political challenges, including high energy costs, sluggish economic growth, and geopolitical instability.

"A fresh trade war with the US under Trump's presidency could exacerbate these problems, destabilizing the region's economy further," said Green.

Analysts also warned that if Trump reduces financial aid to Ukraine, Europe will be forced to allocate more spending to the conflict.

At the same time, the continent would also suffer the knock-on impacts of tariffs on China, meaning a flood of cheaper goods being diverted to their market.

Pharmaceuticals, automotive, and chemical products are the most exposed sectors to potential tariffs as they represent the lion's share of EU exports to the US, according to Morningstar DBRS.

If Trump raises tariffs on foreign goods, he also increases the risk of retaliation from other countries, which in turn could hamper global economic growth and stoke inflation.

"The real fear among market watchers is that Europe would retaliate just as swiftly as it did during Trump's first presidency," said Green.

"While European stocks might take an initial hit, the real blind spot lies in US firms with significant exposure to European markets."

"Tech companies, consumer goods giants, luxury brands, and automotive firms that generate a large portion of their revenues from Europe could be caught in the crossfire," added Green.

"Time will tell whether Trump's 'bark' proves worse than his 'bite,' with inauguration day not for another couple of months, but the election results are set to make those months very jittery indeed for European policymakers," said Michael Brown, a senior research strategist at Pepperstone.

Ahead of the results, European stocks exposed to US tariffs had already seen sharp declines and underperformed the wider market.

As results came in on Wednesday morning, European markets trended up, following the lead of US futures, though gains pared as the day progressed.

On Wednesday morning, Ursula von der Leyen, the President of the European Commission, congratulated Trump in a post on X and called for Europe and the US to work together, calling them "more than just allies."

The rest of the world could suffer

Outside Europe and China, the impacts of Trump's proposed tariffs could also be acutely felt in both Australasia and Latin America.

Steven Kennedy, the most senior civil servant in Australia's Treasury department, said Wednesday that he expects Trump's tariffs to impact the country's economy.

"The significant increase in tariffs would have implications for both the US economy and for China, and there would be flow-on consequences for Australia," Kennedy said during a senate hearing, per News.com.au.

"In very broad terms, the imposition of trade restrictions, such as tariffs, typically lead to lower growth and higher inflation," he said.

In Latin America, rating agency Fitch warned last week that fresh tariffs under a second Trump government would have a major impact on the US' closest neighbor, Mexico.

Mexico's economy relies heavily on trade with the US, its biggest economic partner. Tariffs on that trade would likely lower GDP, Fitch said.

"Aggressive unilateral tariff hikes by the US would lead to a 0.2% to 1.9% reduction of Mexico's GDP relative to our baseline expectations," Fitch said, as reported by Latinvex.