Donald Trump 2.0: Consequences for the global and European market

After a tense race for the new occupant of the White House, Republican candidate Donald Trump defeated Kamala Harris and was elected the 47th president of the USA with 277 electoral votes, compared to Kamala Harris who received 224 votes.

Let us recall that Trump was also the 45th president of the USA and never acknowledged his defeat in the 2020 elections when he was defeated by Joe Biden, and his leadership will have a significant impact on economies around the world, including Croatia. Given the announcements of changes in trade relations and renewed customs policies, the question arises as to how European markets, including the Croatian economy, will react to the new president. We discussed this with economists Vuk Vuković and Boris Podobnik.

‘Without dramatically negative effects on the economy’

– For markets, central bank decisions are always more important than election results. In this context, it is essential to first monitor how the Fed will set its economic projections at the end of the year, as tariffs primarily exert pressure on American inflation. We have seen this in recent weeks through the reactions of the bond market, which fell as a result (yields rose). If the Fed decides to pause interest rate cuts during the next year, this could influence the ECB’s decisions on interest rates, and only then do we have potentially negative consequences for European economies. Additionally, the US dollar will rise against the euro, as the initial reaction has already shown, and the negative effect of tariffs could cause additional problems for the German economy. Croatia is small, and we feel the consequences of what happens in Europe first – believes Vuković.

Potential trade barriers towards China, as well as high tariffs, could escalate with the possibility of disrupting global supply chains. However, this should not affect Croatia too much as our trade exchange with China is negligible in global terms, adds Vuković. Regarding supply chains, we have already experienced a similar scenario in 2017 and 2018 during Trump’s first term, and the markets reacted quite negatively then, but without dramatically negative effects on the economy.

– The world is polarizing, and the arrival of Republicans in power means further tightening of economic relations with China. Trump will certainly work on further abandoning China as a global exporter, pulling part of the industry back to America, while some will be transferred to countries more favorable to America. Just bringing industry back is good in the medium and long term because you cannot be a great economic power if all your industry is abroad, still with your opponents. However, in the short and medium term, inflation is expected as the industry shifts from countries with cheaper production to countries with more expensive production. Financially, the tightening towards China will further lead to parts of the world around China and Russia rejecting the dollar, which can lead to further borrowing, and the problem is that due to multipolarity, bonds are then bought by a smaller part of the world than before, which can further accelerate inflation – comments Podobnik.

Some wonder whether the expected pressures on NATO could affect the Croatian budget, given that Trump has previously demanded higher financial contributions from European NATO members, which could increase military spending in Croatia and other countries in the region. However, Vuković says that this segment is quite difficult to anticipate as he believes that Trump uses it as a negotiating method and will not go for a reduction in American expenditures towards NATO. Even if Trump demands that other members increase

– But if he demands that other members increase their budget share for NATO, I do not believe that this is an expense that would be a dramatic burden on the Croatian budget. It would not be negligible, certainly, but public finances are doing quite well – comments Vuković.

Bad news for Ukraine?

Regarding Trump’s administration, Vuković sees the most risks in foreign policy and considers his victory bad news for Ukraine and Taiwan, but good for Israel. Regarding Ukraine, he adds, Europe will have to take a much stronger role if it wants to defeat Putin, and regarding Taiwan, the most risks are in the semiconductor industry, crucial for the AI industry, as most of the world’s production is there. Efforts are being made to relocate a good part of the facilities to the USA, but risks still remain.

– If there is an invasion by China there, I am not sure that Trump would prevent it – says Vuković.

On the other hand, Podobnik believes that Trump will work more than ever in the interest of the USA and will leave certain initiatives to Europe to resolve on its own. For the EU, he adds, this is good news as it has the opportunity to break away from America and stop being so dependent on it.

– Democrats would not allow that, and Trump and the Republicans, in my opinion, want to. This is good news for the EU, but whether the EU will take advantage of it is the question because we are too regulated and uncompetitive, and energy and raw materials are on average significantly more expensive than with competitors, America and China – says Podobnik.

For Europe to realize its full potential, Podobnik emphasizes the need for systemic changes that include investment in education, with a focus on STEM fields and the application of artificial intelligence in the economy. Encouraging innovation, supporting startups, and developing venture capital will be crucial factors for achieving economic resilience. The fight against corruption also emerges as a priority, with the EU needing to establish itself as a successful example.

– This is a victory for democracy because fortunately, mail-in votes did not prevail. Unfortunately, Democrats and Republicans have polarized too much – to the point that polarization for many has turned into, to put it mildly, intolerance, but also hatred. I believe that the new President Trump is much more rational than some think and that he will work to calm tensions, although he will gladly respond to provocations. I think Democrats were mistaken when they thought they could win over Latinos with woke themes. Latino Americans weighed between what they saw as overly white gatherings around Trump and the Democrats’ insistence on woke and transgender culture, changing children’s gender, and these topics are too much for conservative Catholics. It seems they chose the lesser evil for them in the elections. African Americans, however, thought they were voting for a member of their race, but I just think that Latino Americans and white Americans outside the big cities on both coasts decided – concludes Podobnik.