Tag: World News

Despite the Recent Rebound, Will Investors in the Long-Term Continue to Dump Dollar Assets?

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Although recent losses in US stocks have almost been wiped out, market experts believe that institutions such as pension funds and institutional money managers could in the long-term cut back on their massive exposure to US Dollar investments. Some investment bankers close to the action of certain money managers with trillions of dollars in U.S. Dollar asset exposure have started to cut back on these positions, mainly due to the fall out on the tariff war, flip flopping on policy, and Donald Trump’s continued attacks on the Chairman of the Federal Reserve, Jerome Powell.

Expert analysts advise that logically Europe is the current destination for the flight of capital from the United States, due to growth in the European economy being led by German spending in the defence sector and mixture of relatively cheap equity markets. Recently released data shows that in March 2025, the largest cut in history to U.S. equity allocations* with the shift out of the economy of the United States and into Europe was the sharpest since 1999. Further data released showed that in April 2025, outflows from ETFs (Exchange Traded Funds) domiciled in Europe that invest in U.S. debt and equities reached Euros 2.5 Billion, a level not reached since 2023.

*US equity allocation – refers to the portion of an investment portfolio dedicated to stocks of companies listed on U.S. stock exchanges. It’s a key component of overall asset allocation, which involves distributing investments across different asset classes like stocks, bonds, and real estate.

Although there have been recent gains by the US Dollar, overall, it is down 7% in 2025, with some institutions reporting spot transactions where institutional investors have sold the US Dollar and bought Euros on a sustained basis. One highly qualified and senior macro strategist in Europe announced that “If European pension funds were to reduce their allocations to 2015 levels, that would be equivalent to selling Euros 300 Billion in U.S. denominated assets. Some European pension funds have already started to trim their U.S. holdings position with Danish pension funds in Q1 2025 selling U.S. equities for the first time since 2023 and in the quarter Finland’s Veritas Pension Insurance Co reduced their exposure to U.S. equities.

Investors, analysts, economists etc, all talk about the cyclical effects in the various financial and commodity markets. What goes up must come down and vice versa. Remember the Global Financial Crisis of 2007-9 where liquidity completely dried up, banks were not lending to each other, investment bank(s) going bankrupt, bail outs of some of the largest financial institutions? Several years later everything it seemed was back to normal with the longest run of low interest rates seen for decades.

The point is whilst the United States is seeing massive outflows of capital in a reversal of the long-term trend where inflows were the order of the day where capital was attracted liquidity, market performance and economic growth. Some analysts advise that the current trend will only go so far given the liquidity and depth of the U.S. stock market and the circa USD 30 Trillion US Government Bond/Treasury market. Analysts report that many investors are sitting on the side lines wary of betting against the economy of the United States and its prospects for long-term growth.

Trump 90-Day Suspension U-Turn on Tariffs Except China Sees Equities Rebound

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In line with his election promises, President Trump has marched forward imposing global tariffs on all America’s trading partners, with some countries seeing a 10% tariff, others such as the EU (European Union) being hit with 25% tariffs, and Cambodia topping the list with a whopping 49%. Tariffs have now been returned to 10% across the board apart from China, where tariffs have been increased to 125%, as the announcement of the U-turn came 13 hours after the new tariffs came into effect. However, due to the unpredictability of the Trump2 administration, what happens in 90 days is anybody’s guess.

President Trump has suggested that the pause on tariffs is to give America’s trading partners (except China) time to reassess by making trade deals (or other deals) in order to avoid punitive tariffs. The White House has announced that they want their trading partners to reduce their own tariffs and remove barriers to trade* as such barriers have resulted in the U.S. deficit and should be eliminated. Both Canada and Mexico were not subject to these reciprocal tariffs as they were subject to a 25% tariff regarding illegal immigrants and drugs. However, imports covered by NAFTA (North American Free Trade Agreement) are exempt.

*Barriers to Trade – These barriers are non-tariff and include:

Regulation – Any rules which dictate how a product can be manufactured, handled, or advertised.

Rules of origin – Rules which require proof of which country goods were produced in.

Quotas – Rules that limit the amount of a certain product that can be sold in a market.

Equities

Global markets saw an upward swing not seen for many decades thanks to the 90-day tariff pause, with stocks climbing across the globe. From an equities standpoint the market saw its best rally since 2008 with the tech-heavy Nasdaq 100 rebounding 12%, the S&P 500 Index gaining 9.5%, and the Dow Jones jumping nearly 2,500 points. Europe saw Germany’s DAX rise 7%, Spain’s IBEX 35 up 7.2%, France’s CAC 40 up 6.4%, the pan continental STOXX 600 up 5.3% and the UK’s FTSE 100 up by 6.2%.

Elsewhere in the Far East and Asia, and in response to the 90-day moratorium on tariffs, Japan’s benchmark NIKKEY 225 led the way soaring upwards by 8.8% (gaining over 2,000 points), Hong Kong’s was up 2.69%, Thailand’s SET index surged 4.5% and the Shanghai Composite Index gained 1.29% despite the increase in tariffs on China.

Interestingly, on President Trump’s social media, he announced a buy tip BEFORE announcing the pause on tariffs, making money for all those investors who took his advice. This has caused outrage and concern among ethics experts and opposition politicians who feel that such an announcement is tantamount to giving inside information and is a violation of securities laws.

However, a spokesperson from the White House fired back that the President has every right to reassure the markets, no doubt political opponents will not let this one go, especially as U.S. Senator Elizabeth Warren said, “I am calling for an investigation into whether President Trump manipulated the market to benefit his wall street donors – all while working people and businesses paid the price”.

The US Government bond market (treasuries) has recently seen massive sell offs despite the fact that this market has always been seen as a safe haven in times of volatility and globally there have been massive falls in stock exchanges and bourses throughout the world. This suggests that after the announcement of the fresh wave of tariffs, the U.S. usually viewed as a cornerstone of the global economy has lost the confidence of many investors.

As the price of US government bonds fall, the yield or interest rate rises, which also means that the cost of financing the United States’ debt also rises, and on Wednesday, 10th April, the benchmark 10-year treasury moved to 4.516% and at one stage the 30-year bond hit 5%, being the highest since late 2023. The moves in the treasury markets had, apparently according to experts, caught the President’s eye and may have been one of the reasons he chose to pause tariffs.

China

Whilst the rest of the trading world with the United States enjoyed a 90-day pause on tariffs, President Trump hiked tariffs on China by a massive 125%, saying on a social media post, “based on the lack of respect that China has shown to the world’s markets, I am hereby raising the tariff charged to China”. The decision by President Trump to escalate the tariff war on China came after Beijing announced retaliatory tariffs of 84% on imports of all American goods, but Trump expects China to come to the negotiating table despite their hard line approach to tariffs.

Experts suggest that this is just not simple retaliation by President Trump but more like unfinished business from the Trump1 administration and he was quoted as saying with regards to China, “We didn’t have time to do the right thing”. Furthermore, when Trump was campaigning as an outsider for his first successful stint in the White House, one of his oft repeated themes was that China is responsible for hollowing out the American economy, driven rustbelt decline, and cost blue collar workers their livelihood and dignity.

Unless these two economic powerhouses back down, the the whole scenario will devolve into a full scale trade war hurting a bilateral trade worth circa USD 585 Billion, and this is the crux of the matter, of that USD 585 Billion America’s imports from China accounted for USD 440 Billion. Figures released by the IMF (International Monetary Fund) show the U.S.A. and China account for circa 43% of the global economy and if an all-out trade war ensued this would slow down growth in both countries, (experts suggest perhaps recession) and harm growth in other countries and slowing down global investment.

Conclusion

Sadly, there is at this time no real conclusion as there is so much uncertainty surrounding White House decision making, there is only a rolling commentary on on-going proceedings. President Trump announced a reason for the U-turn on tariffs is that people were getting yippy and nervous, but experts suggest it goes a lot deep than that with Scott Bessent (U.S. Treasury Secretary) asserting that the U-turn had been the plan all along to get the countries to the bargaining table. Now that the 90-day moratorium on tariffs has been announced, the world will hold their collective breath and wait to see how the United States v China tariff war plays out.

No one wins from an outright trade war between these two giants of the global economy, but Donald Trump has, according to experts, had it in for China since he first took over the oval office. It has also been reported that the EU and China are working together against Trump’s tariffs with Chinese Premier Quang (2nd in command in China) receiving a call from EU President Ursula von der Leyen. The White House is treading a fine line with tariffs, and they may yet push the EU and China even closer together (China is the EU’s largest trading partner) and this would totally upset the world order.

Tariffs Cause Global Market Chaos 

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On Monday, 7th April 2025, and from the opening bell in the far east, through Europe, and into the United States, chaos ensued across global markets. In the Asia Pacific arena, long before Europe and the United Kingdom had woken up, stock markets fell on a scale not seen in decades. In some Asian exchanges, due to mounting losses, trading was suspended as the Shanghai composite sank 7.34% and Japan’s Nikkei fell 7.83%. Hong Kong was the worst hit while equities in Japan, Taiwan, Australia, South Korea, and Singapore all suffered heavily, seeing steep declines.

In Hong Kong, the stock market plummeted 13.74% (its biggest single day decline in 30 years), before closing out at 13.22%. Experts suggest that the fall in Hong Kong’s stock market accurately reflects market expectations on how tariffs will affect the Chinese economy rather than any movement on China’s stock exchanges. They point out that Chinese stocks cannot be shorted, and it is impossible to trade freely.

In Europe, markets were also having a bad day as Donald Trump continued to wage his trade war. The pan-European STOXX 600* took a beating and was down 4.5% (down for the fourth straight session), whilst other major stock exchanges or bourses closed out down between 4% and 5%. In Germany, the benchmark DAX index** (.GDAXI) (trade sensitive) fell by as much as 6.4% finally closing at down 4.3% but painfully down 20% from its March 2025 closing all time high.

*STOXX 600 Index – This index tracks 600 of the largest stock exchange listed companies from 17 countries in Europe. The countries represented are Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

**DAX Index – This index measures the performance of Germany’s 40 largest companies that trade on the Frankfurt Stock Exchange and is considered by many analysts as a gauge of Germany’s economic health.

Again on Monday, 5th April, along with other global stock markets, UK stocks fell dramatically extending their selloff from the previous week. The FTSE 100 closed down 4.4%, hitting its weakest closing level for over 12 months and since Thursday, 3rd April, Blue Chips have fallen by 10%. In the meantime, Prime Minister, Keir Starmer, has announced that the United Kingdom will seek to lower trade barriers with key trading partners around the world whilst fighting to secure a trade partnership with the United States.

In the United States, the news was just as bad with the Dow Jones Industrial Average falling for a third day on the trot, with the S&P 500 losing in excess of 10% since Thursday, 3rd April. Equity markets are sending a massive NO to President Trump’s Liberation Day tariffs and analysts suggest that hedge funds may well be forced to sell down their equities and other current risky assets in order to pay margin cash calls.

There seems to be no let up on tariffs as President Trump doubles down on China and announces that there are no plans to pause tariffs. Indeed, China imposed a 34% tariff on all U.S. goods on Friday, 4th April 2025, in response to the 34% tariff imposed by President Trump on all Chinese goods. However, in response to the Chinese actions, Trump announced he would retaliate with a further 50% tariff on all Chinese goods into the U.S. effective 9th April, unless China withdraws their tariff by 8th April. China is in no mood to take a backward step with Beijing vowing to fight to the end and China’s Commerce Ministry accused the U.S. of blackmail.

President Trump and his Trumpeteers have said that tariffs have stopped bleeding the U.S. of income and in four years we will be rich and self-sufficient whilst opponents cry you have wrecked global stock markets, sabotaged supply chains and ruined individuals’ pensions. The looming trade war with China will have, according to experts, massive fallouts across the globe. Who will blink first, China or America or will the world see a massive realignment of global trading?

Tariffs, Tariffs and More Tariffs as Donald Trump Risks Global Trade War

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Wednesday, 2nd April 2025 (or liberation day as per President Trump), is a day that will stand out in history, as Donald Trump announced a sweeping across the board 10% tariff on all imports of goods into the United States. He further announced reciprocal tariffs of 20% and rising on countries he feels has cheated America, by which he means those countries with massive trade surpluses with the U.S. and also those who already add big tariffs to American imports. President Trump had already separately announced a tariff of 25% on all global car, truck and auto accessories starting on 3rd May 2025, and a 25% tariff on all aluminium and steel products. Experts advise that these levies/tariffs/taxes are the biggest increases since 1968.

Global markets from tech to banking have been left reeling as President Trump through his tariffs attempts to rearrange global trading and the current economic order. However, thanks to tariffs, U.S. equities have taken a beating with the three major stock indexes plunging in excess of 5%, the biggest of which was the S&P 500, which crashed by almost 6%. This was the steepest fall since 2020, and elsewhere in the United Kingdom the FTSE 100 fell by just under 5%, marking its steepest fall since 2020, with similar falls being recorded in France and Germany. The global stock market has, since Trump announced an across the board tariff of 10% on every country, lost literally trillions of dollars in value, however China, the EU (European Union) and Vietnam are all facing higher tariffs on their exports to the U.S..

On Friday, 4th April 2025, China announced a 34% tariff on products from the U.S. whilst at the same time lowering exports of essential minerals plus adding a number of American companies to their blacklist and accusing Donald Trump of violating international trade rules. The EU announced through their trade commissioner that they are still looking for meaningful discussions in the hope of reducing their across the board 20% tariff, though he promised if talks failed the EU would defend themselves. The largest EU economy is Germany and with a separate tariff of 25% on the imports of cars into the U.S. and a 20% across the board tariff on all imports into the U.S., the German economy will, according to experts, take a hit in a drop in GDP of 1.5% equivalent to a loss of Euros 200 Billion over the tenure of President Trump.

The President of the EU, Ursula von der Leyen, has vowed to retaliate and condemned President Trump and went on to say that tariffs will have dire consequences for all consumer and businesses on a global basis that have enjoyed trading with the U.S. since World War II and added, “We are already finalising a first package of countermeasures in response to tariffs on steel”. The EU is of course still open to negotiations, but Ursula von der Leyen is in no mood to lie down and be trodden on. She has already announced that the EU has everything it needs to survive and survive it will. Tough talk from a tough President who will meet Donald Trump head on, so unless negotiations are successful, a full-out trade war between the U.S. is certainly on the cards and could go global.

In the United States, many experts and analysts agree that the new tariffs will push the American economy into recession, an economy which is currently losing momentum, with the result of increasing prices due to tariffs being passed on to the consumer. Analysts further advised that the tariffs could well push the American economy into a recession and have a negative effect on inflation, reversing the current downward trend. Indeed, the US Dollar shortly after the tariff announcements fell by 1.7% against a basket of European trading partners’ currencies which according to market experts reflect concern regarding growth in the economy. Some experts have warned that core inflation (excludes food and energy prices) could go as high as 4% (3.1% as of end of February 2025), unemployment to rise (despite current hiring figures showing an increase) and real GDP to decline.

In the long run, experts suggest that Trump may get his financial rewards from tariffs but his “allies” who he has hit with punitive tariffs may well look elsewhere for new trading partners, with China being the ultimate beneficiary which may well benefit BRICS* as well. Indeed, BRICS is now a major political force looking to be a counterweight to western influence with its current members accounting for just over 25% of the global economy and almost half the world’s population. There has been a lot of internal division within the BRICS organisation, with Russia leading the way over their unlawful invasion of Ukraine, however tariffs may bring them together in such a way that the allies who Trump has hit with punitive tariffs may well look to increase trade with these countries. Whilst the America First slogan is banged consistently by the U.S. administration, some of the poorest nations in Africa have been hit with punitive tariffs, with Lesotho being a prime example at a massive 50% tariff. It is no secret that BRICS want what they call the southern nations to come under their umbrella (Africa and South America) and again these tariffs could drive these nations into the arms of BRICS. Geopolitically, tariffs may be the current U.S. administration’s biggest mistake.

*BRICS – is an intergovernmental organisation consisting of ten countries, Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates. The founding countries were Brazil, Russia, Indonesia, and China forming BRIC with South Africa joining at a later date to form BRICS. There are a slew of countries waiting approval of membership from BRICS including Saudi Arabia who have been approved but have delayed joining.

In the United Kingdom, experts advise tariffs will hit key manufacturing sectors and will undermine the positive growth, albeit fragile, predictions of the Labour government. Many businesses are already facing rising costs due to the Chancellors’ budget and tariffs will, according to some analysts, place negative pressure on demand and weaken supply chains. The Director of the British Chamber of Commerce was heard to say that “Orders will drop, prices will rise, and global economic demand will be weaker as a result”. Prime Minister, Keir Starmer, advised he is still hopeful that negotiations will reduce the 10% tariff, however he has begun the process of consultation with regard to retaliatory tariffs should negotiations fail. Across the Irish Sea, Northern Ireland ministers announced they feel trapped as despite the 10% tariff on the United Kingdom, if the EU announces retaliatory tariffs N. Ireland could face the higher EU tariff on any U.S. imports entering from Britain under the post-Brexit deal* between the United Kingdom and the EU.

*The Northern Ireland Protocol – is intended to protect the EU single market while avoiding the imposition of a “Harder Border” that might incite the recurrence of conflict and destabilise the relative peace that has held since the end of the troubles.

In Asia, the APAC* region was hit with tariffs between 10% and 49% with the higher rates being targeted at those countries’ lower value-added items such as textiles, garments, furniture, and footwear. Vietnam (apart from China) is currently enjoying the largest trade deficit with the U.S. (USD 123.5 Billion), got hit with 46% tariff, whilst Cambodia got hit with a 49% tariff (trade deficit USD 12.13 Billion) Sri Lanka saw a 44% tariff (trade deficit USD 2.65 Billion), Bangladesh was given a 37% tariff (trade deficit USD 2.6 Billion) with larger economies in the region slightly better off with Singapore being hit with the minimum of 10% tariffs. Experts suggest that Asian currencies may face depreciation pressure as financial markets could turn risk averse affecting FII (Foreign Institutional Investor) inflow.

*APAC – stands for Asia Pacific Region and is a broad geographical region encompassing countries and territories in or near the Western Pacific Ocean. This region typically includes East Asia, South Asia, South East Asia, and Oceania (Australia, New Zealand, and surrounding islands).

In typical Trump fashion, in one fell swoop global trading has been turned on its head, geopolitics may never be the same again and markets will remain volatile for some time to come. Experts suggest it may take weeks or in some cases months to assess the fall-out from President Trump’s tariffs. President Trump may well have destroyed smaller more vulnerable economies, destroying the lives of that country’s population at the same time. However, in breaking news the White House advises that 50 countries have contacted the administration looking to do trade deals and avoid duties. Meanwhile voices in the U.S. from the CEO down to the smallest consumer are already getting louder voicing their antipathy towards tariffs with anti-tariff rallies taking place in a number of cities throughout the world. He may think he is putting “America First” but who’s to say in the long run it may well be “America Second”.

Trump, Tariffs, BRICS, and Artificial Intelligence

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In his latest pronouncements on tariffs, President Trump announced that he would enact cross-border tariffs higher than 2.5%, a figure apparently propounded by the incoming Treasury Secretary, Scott Bessent. The President told reporters aboard Air Force One that “I have in mind what it’s going to be, but I won’t be setting it yet, but it’ll be enough to protect our country”. This is yet another signal from the President that he is prepared to reshape supply chains through the introduction of tariffs in order to put “America First”.

President Trump went to tell reporters that he would be using tariffs to target specific sectors such as aluminium, copper, pharmaceuticals, semiconductors, and steel. He also advised that he may well target Mexico and Canada with tariffs on their automobile exports to the United States, the same countries that he has already targeted with tariffs of 25% on all exports to the USA (to be imposed on 1st February 2025). President Trump’s underlying belief is that tariffs on countries exporting to the United States will increase the number of jobs at home, bring factories back, and taxes on businesses and individuals will come down. 

Interestingly, the threat of tariffs on the semiconductor sector came shortly after the Chinese start-up on AI (artificial intelligence) DeepSeek* not only worried investors but erased billions from the market capitalisation of Nvidia Corp**. It appears the DeepSeek model can be as effective as other well-known AI models but at a fraction of the cost. This has translated into less data centres signing up to the likes of Nvidia, as DeepSeek can drive down the consumption of electricity, and they now challenge the assumption that the United States hold dominance in the AI market. 

*DeepSeek – Until very recently, DeepSeek was a little known Chinese start-up, but has sent shockwaves through the tech market having released an AI model named RI that can outperform leading developers from the United States such as Nvidia, OpenAI, and Google. Is reported that DeepSeek only had a USD 6 Million budget to produce RI, as opposed to the multibillion dollar budgets employed by their US counterparts.

**Nvidia – Is famous for accelerated computing to tackle challenges no-one else can and their work on AI and digital twins is transforming the world’s largest industries. Their work on AI using a GPU (graphics processing unit as opposed to a CPU – central processing unit) allows them to crunch massive amounts of data for AI much faster. When RI cast doubt on the supremacy on of US tech firms, Nvidia shed circa USD590 Billion in market value which was the biggest fall in US stock market history.

President Trump said of DeepSeek, “The release of DeepSeek should be a wake up call for our industries and that we need to be laser-focused on competing to win”. On Monday 27th January 2025, there was a major market fall-out regarding DeepSeek, with technology stocks in Europe and the United States falling by circa USD1 Trillion, with investors now questioning the spending plans of some of the biggest companies in the USA. 

On the tariffs front, experts are saying this economic tool will not just be used against those countries with just a trade surplus with the United States. Indeed, President Trump will use tariffs in other areas such as the recent spat with Colombia, where the country’s President Gustavo Petro barred and refused landing rights to two military flights from the United States carrying deported Colombians. President Trump threatened punitive tariffs of 25% on Colombian exports to the USA unless the Colombian acquiesced, and despite counter tariffs being threatened, President Petro agreed to accept migrants (including those arriving on military aircraft) without limitation, hindrance or delay. 

Elsewhere on the Trump/Tariff radar, Europe and the EU bloc has been threatened with tariffs regarding those countries with trade surpluses and those countries (just about all of them) which President Trump believes aren’t paying enough on defence. Also on the radar are the BRICS* nations, who Trump has promised to impose 100% tariffs on should they try and create a rival currency to the US Dollar. Leading politicians within the BRICS have already floated the idea of a rival currency. 

*BRICS  – is recognised as a group of emerging market countries and the acronym stands for Brazil, Russia, India, China, and South Africa. Originally the acronym was BRIC (as South Africa was not part of the founding members) and was coined in 2001 by a Goldman Sachs economist Jim O’Neill. On January 1st, 2024, Egypt, Ethiopia, Iran, and the United Arab Emirates joined BRICS, who also announced that their newest member is Saudi Arabia, but the United Kingdom has yet to put pen to paper so as yet have not officially joined

Over the last 24 years, BRICS has grown into what is effectively a world club comprising of ten member states, some of whom are major energy producers such as the United Aram Emirates, whilst others are recognised as the largest consumers amongst the emerging or developing economies. Many western commentators feel that BRICS, led by China, are an anti-western organisation and have ambitions to have their own currency moving away from global reliance on the US Dollar.

Many experts feel that President Trump will stay true to his word and invoke tariffs on many countries, including America’s allies. He is especially adamant about those countries he feels will do the United States harm and he has named Brazil, India, and China in that bracket. How far the President will go with tariffs we will have to wait and see, but with China upending the Artificial Intelligence sector, it looks like certain countries are in for a bumpy ride.

Global Energy Overview for 2025

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Data released showed that 2024 saw a record uptake in renewable energy, EV’s, and other areas, however experts predict that in 2025 the demand for fossil fuels is expected to increase by more than 3 Million BOE/D*. At the same time, analysts suggest that CO2 emissions associated with the combustion of fossil fuels will reach a new record high, but will be the smallest increase since the end of the pandemic. 

*BOE/D – This is an acronym for “Barrels of oil equivalent per day”, and is a term used in the gas and oil industry as a measurement used to describe the amount of energy produced or consumed in a day. 

2025 will be a year of uncertainty as, according to experts, war zones such as Ukraine and Gaza have the potential to significantly alter energy markets. Further geo-political problems and polarisation between China and the western nations add to this uncertainty, with President Trump promising tariffs and Europe using tariffs to protect their markets, whilst China are looking for greater global influence by leveraging their position as a leader in clean technology.

There are a number of areas to be aware of in 2025 some of which are outlined below.

President Trump

During his 2024 campaign, and the build up to his winning the 2024 presidential election, it became, according to experts, obvious that the second term of President Trump (or Trump2) will follow a very different path on climate policy and energy to that of out-going President Joe Biden. First, it appears that the new administration will pull out of the Paris Agreement* and an increasingly negative attitude towards a somewhat weakened COP**.

*The Paris Agreement – Also known as the Paris Accords or the Paris Climate Accords, is a legally binding international treaty signed in 2016 and covers climate change mitigation, adaptation, and finance. There are circa 195 members of the UNFCCC ( United Nations Framework Convention on Climate Change). The United States withdrew in 2020, rejoined in 2021 and are expected to withdraw again under the new administration. The overriding goal of the agreement is to limit the global temperature increase to 1.5 degrees C and to hold the increase in global average temperature to well under 2 degrees C, both above pre-industrial levels.

**COP – The Conference of the Parties attended by governments that have signed the United Nations Framework Convention on Climate Change, (UNFCCC), a treaty which was created in 1994. The conference meets once a year and assesses global efforts to advance the key Paris Agreements aimed at limiting global warming.

President Trump and his new administration have said they will increase US oil and gas production by promoting drilling and offshore and federal land exploration. They have also expressed their desire to increase LNG (Liquid Natural Gas), making the United States a bigger player in the market. They may hope to take advantage of European markets, who will be seeking alternative suppliers to Russian gas. The implications of such a policy may well depress global energy prices, however such downward pressure could be offset by OPEC+ adjusting production quotas. Analysts also suggest that an increase in geopolitical tensions, for example with Iran prompting a reduction in Middle East supplies, could offset any increases in production from the United States, all of which could lead to prolonged price volatility.

Total energy demand: Fossil fuels vs. clean energy

Apart from various economic recessions and the Covid-19 pandemic, there has yet to be a year when green/clean energy (nuclear, hydro, solar, wind, and other renewables) supply has resulted in the reduction in the use of fossil fuels. Experts suggest that 2025 will see robust growth and above-trend in energy demands, but even the fast growth of clean energy (over 5 Million BOE/D) it is not enough to curtail the demand for fossil fuels, let alone displace that demand. It is expected that fossil fuel demand will increase by more than 3 Million BOE/D resulting in record high CO2 emissions. 

Nuclear energy

Experts advise that nuclear energy is on the up especially in the United States, and for decades has proven to be a reliable and stable source of clean energy resulting in a carbon-free provider of electricity. Many companies are trying to decarbonise and interestingly in 2024 Amazon, Microsoft, and Google all signed power supply agreements with ties to nuclear capacity to help feed their growing data centres. 

Analysts suggest that in 2025, nuclear power generation will reach unprecedented levels, with a number of countries ramping up production in Asia and Europe. The IEA (International Energy Agency) has advised that the report from “The Path to a New Era for Nuclear Energy” says the strong comeback to nuclear energy, as advised by the IEA several years ago, is well underway and 2025 will be a record year for nuclear powered generation of electricity. 

The price of Uranium has been an indicator as to how nuclear power is on the way up. Over the last five years, the price of Uranium has soared by 255% which confirms the demand for the commodity is on-going. This strategically important metal owes its current value to the increase in nuclear powered plants in the shift to green energy plus a number of global economic factors which have also had a significant bearing on its current value. The long-term outlook for Uranium is bullish as across the world there are currently 61 nuclear reactors under construction, plus a further 90 reactors are in the planning stage with in excess of 300 in the discussion phase.

Consumption from data centres and AI

Experts suggest that in 2025, as Artificial Intelligence a datacentres expand, the demand for electricity will increase to such an extent it could fundamentally effect the trajectory of global power demand. Indeed, analysts see the demand for power between 2025 and 2030 through the increasing number of  datacentres will increase by 10% – 15% per annum. In developed countries, datacentres have accounted for a circa 3% increase in power requirements, which may have taken clean power away from the grid and has possibly aided the on-going consumption of fossil fuel generated energy. 

Liquid natural gas

After two years of relative inaction and limited growth, experts see 2025 as a year of significant change in the LNG market especially as there will be an increase in liquification capacity coming out of the United States and Canada. Analysts suggest there will be an increase in capacity of circa 27 Million mt (metric tons), 90% of which will emanate from North America, with a number of facilities all expecting to ramp up production in 2025. 

Analysts advise that total global growth projections for 2025 and 2026 currently show and an increase of 2.3%. Interestingly, in Q3 2024 y/y (year-on-year) European gas imports from outside the bloc suffered a 10% decline, and if the Russian gas transit through Ukraine agreement is not renewed, in excess of 5% of their needs will have to be sourced elsewhere such as the USA and Canada. All in all, experts suggest that exports of natural gas by pipeline will increase in 2025 by 2.9 Bcf/d (billion cubic feet per day) with the bulk of the increase coming from LNG.

Coal

Analysts predict that in 2025 global demand for coal will continue to grow in spite of renewable installations hitting record highs. Demand for coal reached new records in 2023 and 2024, and as indicated above the increased call on energy from datacentres and the charging of EV’s has increased the demand on fossil fuels, despite record growth in renewables. Interestingly, some experts suggest that demand for coal in Europe and other developed economies may indeed fall, however, data released shows China represents 60% of global coal consumption and despite renewables increasing the country, can expect another record year for coal fired energy consumption. 

India is also expected to hit new highs on coal fired energy consumption and demand in the United States is expected to rebound significantly in 2025 after decades of decline. Whilst some analysts expect coal consumption to remain broadly flat the expected increase from China will have a large impact on prices though renewables will increase and begin to eat into their coal consumption. Experts in this arena expect demand to be in the region of 8.77 Billion tonnes for 2025 but all eyes will be on China to see if they reduce their coal consumption.

Jet fuel demand

Post pandemic, airline passengers figures have been increasing year on year, and experts from IATA (The International Air Transport Association) predict air passenger numbers to top five billion for the first time with the sectors revenues breaking the trillion US Dollar mark in 2025. They also added that the accumulative cost of jet fuel will be USD248 Billion, circa 5% below that of 2024 with fuel consumption rising y/y (year-on-year) to 107 billion gallons up 6%, a number in line with what airlines have been reporting over Q3 and Q4 2024. IATA suggests that data shows that overall costs for the airline industry will rise by 4% in 2025 to USD940 Billion of which jet fuel costs total 26.4% down 28.4% from 2024. 

Renewables

In the renewables arena, experts suggest that this sector will go through major transformations in 2025. New advancements in this sector come quick and fast, with new energy technology and government policies all favouring renewables. Indeed, in the United Kingdom Energy Secretary Ed Miliband looks to turn the country into a solar energy and wind turbine farm. 

Predictions from the IEA (International Energy Agency) suggests that in 2025 renewables will be responsible for providing circa one third of the worlds electricity needs, and by 2028 90% of the worlds energy requirements will come from renewables. Data released indicates that solar energy will be the dominant renewable power in a number of countries in 2025, and global capacity doubling in 2026 closely followed by wind energy.

There is a renewables gap, where demand is outstripping supply, and the race is on to fill that gap. For the first time in history, 2025 will see Asia account for 50% of the world’s electricity consumption with China consuming one third of global electricity.

OPEC and OPEC+

OPEC is a synonym for The Organisation of Petroleum Exporting Countries and was founded in Baghdad in in 1960. The original members are Iran Iraq, Kuwait, Saudi Arabia, and Venezuela, and today the current organisation has twelve member countries. OPEC control circa 35% – 38% of global supply of oil, but according to current estimates they own circa 80% of proven oil reserves. 

In late 2016, the members of OPEC signed an agreement with ten other oil producing countries to form what is known today as OPEC+. Among these countries was Russia who at the time produced 13% of total global output of oil. Today OPEC+ controls circa 48% of global production. 

Analysts suggest that 2025 could well be an unpredictable year for OPEC+, with tariff threats from President Donald Trump and the continuing war zones of Israel/Gaza and Russia/Ukraine presenting challenges to their ongoing strategies. OPEC’s forecasts for 2025 is for oil demand to reach 104.2 Million b/d (barrels per day) in 2025 and an increase to 106.6 Million b/d in 2026. Robust demand is expected to come from developing countries where data shows that consumption will almost double with Asian countries being key, and India and China being central to this growth.

OPEC+ analysts predict the price of Brent* crude oil will average USD74, down 8% from 2024, and will fall another 11% in 2026 to USD66 per barrel. OPEC sellers such as Saudi Aramco will sell their Arab Light into Europe plus or minus Brent, depending on their appetite for more or less market share.

*ICE Brent Crude – Is the benchmark used for light oil markets in Europe, Africa, and the Middle East. Saudi Arabia also use the Argus Sour Crude Index for their flagship Arab Light Crude for North America, and Oman and Dubai Indexes for East Asia. 

Conclusion

2025 will see an increase in the demand for fossil fuels despite record output from the renewables arena. The price of a barrel of oil is expected to come down unless geopolitical problems once again explode, putting upward pressure on prices. All eyes will be on renewables to see if they outperform expectations with particular eyes on the nuclear sector as it becomes more and more popular. Finally, there is the Trump.20 presidency whose policies on tariffs could, according to experts, significantly impact many sectors within the energy arena. Only time will tell how this will play out.

The Trump Effect on the Economy of the United States of America

Written by IntaCapital Swiss on . Posted in News & Reports. Leave a Comment

On Monday 20th January 2025 ex-President Donald Trump will once again become President of the United States of America and a new era of Trump economics will begin. There are many differing opinions on what may happen to the American economy, but one thing seems certain: tariffs on imports to the United States are back, with China seemingly getting the brunt of this policy. Many commentators are at odds with each other as to what may happen in the short, medium and the long-term of a Trump2 presidency, so what policies will really impact the economy of the United States?

Tariffs

Many analysts and economists have said that the tariffs threatened by Donald Trump (10 – 20% on all imports apart from China which is 60%) will have the biggest impact on the US economy. In his first term, the Trump administration placed taxes and duties on imports of circa USD380 Billion, and his second administration is expected to increase tariffs even more under the “America First” policy. What is also important is that, as was seen from his first administration, the President can enact tariffs all by himself without the approval of congress.* 

*Tariff Approval – The approval of tariffs was once in the hands of congress who had the constitutional right and would require legislative action. However, many years ago, congress gave up its rights to set tariffs and today a range of laws now authorise the President when certain conditions are met to impose tariffs. Under the International Emergency Economic Powers Act of 1977, the President can invoke emergency powers to impose tariffs without having them approved by congress.

The President elect has already said that tariffs or import taxes will reduce the trade deficit of the United States, whilst at the same time raise revenue and re-shore manufacturing. Some experts predict that the President elect will implement tariffs with alacrity, however, analysts predict that as a result of import duties/tariffs, inflation will rise because the higher costs now being experienced by importers will be passed on to consumers. Janet Yellen, the United States Treasury Secretary in December 2024 has been quoted as saying that the President elect’s plans to levy broad import tariffs could derail progress in quelling inflation and raise costs for businesses and households. The Treasury Secretary went on to say that Donald Trump’s tariff plans of 60% on Chinese imports and 10% – 20% on imports from elsewhere would “raise prices significantly for American consumers and create cost pressures on companies”. 

Such concerns have been dismissed by the President elect and his cohorts as downbeat projections from senior figures on Wall Street. They pointed out that until Covid-19 and the pandemic hit, the President in his first term presided over robust growth, this despite tariffs which also did not cause inflation to spike. Indeed, the CPA* (Coalition for a Prosperous America) estimated that with the promised income tax cuts combined with a universal tariff of 10% would create circa 2.8 million jobs and would add circa USD700 Billion to economic output. 

*CPA – This is the only national non-profit organisation that exclusively represents domestic producers across the United States. They are a coalition of manufacturers, workers, farmers, and ranchers, and represent the interest of 4.1 million households. Their team includes decades of government experience in congress, the executive branch, and the private sector.

Deregulation

Historically, businesses favour deregulation and are more likely to invest under a political administration that favours such an option. Indeed, Donald Trump’s goal of removing ten regulatory rules for every new one issued will create, according to some experts, hyper deregulation, which will make a positive impact on economic growth. Analysts point to the 1990’s, where a comparative study between the United States and Europe showed that stricter regulation in Europe, and especially during a period of rapid technological information, resulted in the United States having faster growth than Europe. This particular study showed that tighter regulation deterred investment whilst a more liberal attitude towards regulation boosted investment. 

The Trump2 administration will be able to reduce quickly and efficiently what is known as “Extra Regulatory Guidance” as it does not require approval from congress. However, the removal of whole government departments and agencies would take a serious amount of time and the newly formed DOGE (Department of Governmental Efficiency)is not expected to issue their recommendations until mid 2026. Experts suggest that the prospects of deregulation will more than likely encourage a “risk on” environment in the United States, which could be especially beneficial to cryptocurrencies and financial stocks.

Tax Cuts

Analysts suggest that a Trump2 administration will probably focus on his first administration’s TCJA (Tax cuts and Jobs Act) with a view to expanding and extending this act. The reason for extending the act is that if it was allowed to expire it may well encourage a fiscal drag on US growth, so it is assumed this will have a positive impact on the economy. Corporate profits are also on the Trump2 radar with plans to cut the top rate of tax from 21% to 15%. Experts have suggested that this will be more difficult to achieve because of the current federal deficit, the pressure to raise spending on defence and other areas plus the effect extending the TCJA, which has a direct effect on voting households’ budgets. 

However, economists warn that what impact that tax cuts will have on the federal deficit as the original TCJA was not fully funded (the loss of tax revenue was not offset by other tax revenues or spending cuts). Team Trump2 however, argue that deregulation and lower taxes will eventually pay for the tax cuts (albeit indirectly) as they will ignite investment, productivity, and economic growth.

Immigration

It appears that President elect Donald Trump has two planks to his immigration policy, 1. Deporting undocumented individuals already residing in the United States and 2. Basically closing and securing the southern border of the United States. 

The incoming administration has threatened to deport between 15 and 20 million people within the United States who have no proper documentation. Experts in this area report that near-term actions will focus on the circa 1.4 million individuals that have been ordered by the courts to leave the United States. There are also a backlog of court cases accounting for circa 3.7 million individuals which will be which the new administration will hope to pass through the courts as quickly as possible. 

Many commentators agree that mass deportations could have a negative effect on the economy and inflation, with adverse effects on the service sector (experiencing acute labour shortages) and the agriculture sector where an increase in pricing could be the result of deportations. Doomsdayers suggest that such a policy could lead to stagflation, higher inflation and even a recession with a slowdown in the economy and higher wage costs. However, such speculation is dismissed by the incoming administration who feel by putting America First will allow the USA to be economically and socially on the up. 

During the Trump1 administration, securing and closing the border between Mexico  and the United States was not completed, and in the Trump2 administration the President elect will be leaning on the President of Mexico to help stop illegal crossings into America. President elect Trump has already made his feelings and intentions towards Mexico exceptionally clear. Indeed, on the very last day of campaigning the then ex-President Trump advised his supporters that the Mexican President would be the receiver of one of his first telephone calls. He said he would advise President Claudia Sheinbaum that if she did not stop the onslaught of drugs, criminals and other illegals coming into the United States, he would impose an immediate tariff of 25% on everything coming out of Mexico bound for the USA. However, a number of economists have advised that closing the border will have little impact on the economy of the United States.

Final thoughts

It is difficult to predict the future, but one thing is certain: President elect Donald Trump, with his “America First” policies, will use tariffs as a weapon to try and get his own way. Furthermore, experts suggest his policies will have a dramatic effect on the regulatory and economic landscape of the United States. Elsewhere, sustainable investment (not on the list of Trump2 priorities) emerging markets and other sectors will all feel the effect of the new administration’s policies, with broader implications for environmental risks, new challenges to global trade dynamics and increased market volatility.

 The Trump Effect on the Economies of India and Pakistan

Written by IntaCapital Swiss on . Posted in News & Reports. Leave a Comment

Part 1: India

A number of experts are suggesting that President elect Donald Trump’s second term offers a mixed bag, but a general positive outlook, for the Indian economy. Experts suggest that a Trump2 presidency may well engender deeper ties with the United States, especially in the areas of technology, pharmaceuticals, and defence. However, Donald Trump’s vow of tariffs and immigration restriction suggests that Prime Minister Shri Narendra Modi’s closeness to Donald Trump may be helpful in any upcoming negotiations. 

As President elect Trump’s inauguration approaches (20th January 2025) there will be a seismic shift in economic policy. According to analysts, India will seek to reinforce strategic ties with the United States, particularly in the defence arena in the Indo-Pacific region, which is important for their security. It is hoped that increased ties in the defence area will positively impact the defence sector through increased cooperation and investment.

Donald Trump’s drumbeat of “America First” is led by tariffs, which could have a diverse effect on India’s economy, with the possibility of increased tariffs on textiles, steel products and automotive parts. Such tariffs would have a direct effect on India’s manufacturing sector and imports into the United States, especially as in 2024 data released show India having a trade surplus with America of USD35.3 Billion, which represents a red flag to the incoming administration. 

On the currency front, experts are suggesting that under a Trump2 presidency the Federal Reserve may adopt a more hawkish outlook, due to the new administration’s economic policies. Analysts believe that these policies could have a negative impact on inflation and could strengthen the US Dollar against the Rupee, increasing costs to those Indian companies paying for imports in US Dollars. Conversely, however, a weaker rupee against the dollar will have a positive impact on the export sector with companies seeing an increased profit margin.

India stands at the crossroads with the United States, and if they strategically place themselves as a trusted and stable defence and trade partner, navigating the tariffs and immigration challenges presented by Trump2, they could very well turn these challenges into avenues for partnership and growth. If the government and businesses adapt themselves to this new scenario they should hopefully minimise risks and maximise gains especially as the President elect appears to be prioritising India to counterbalance China in the Indo-Pacific.

Part 2: Pakistan

A Trump2 presidency may, according to experts, pose a number of challenges for Pakistan, especially as uncertainty abounds in the corridors of power in Islamabad. Today, it appears that Pakistan is deemed a lot less relevant in the minds of those with power in Washington. Indeed President elect Trump views Pakistan as a haven for terrorists, and in his first term severely cut economic aid to the country. China is Pakistan’s largest trading partner and if they are to enjoy any sort of friendship with the President elect, their officials will have to walk a tight line between China (Trump2 has promised 60% tariffs on China’s exports to the USA) and the United States if they need to fulfil their security and economic needs.

However, despite these misgivings the State Bank of Pakistan recently advised that their policy of quantitative easing has supported economic growth on a sustainable basis, whilst keeping external pressures and inflationary pressures in check. Their MPC (Monetary Policy Committee) recently cut their benchmark interest rate to its lowest level for two years, with the result that inflation has eased allowing the bank to boost growth. Indeed, the State Bank lowered their target rate by 200 basis points to 13% its lowest level since April 2022. 

The Governor of the State Bank of Pakistan Jameel Ahmed recently said the “the overall situation has improved on the economic front” and that the State Bank expects inflation to fall to the benchmark target range of 5% – 7%. The State Bank has cut interest rates by 900 basis points since June 2024 with data showing inflation had hit its lowest level since late 2018. 

Elsewhere, the foreign exchange reserves rose to USD12.05 Billion according to data released on 6th December 2026, mainly due to Pakistani expatriate remittances, which rose by 34% to USD14.8 Billion through five months to November 2024. Pakistan’s Finance Minister Muhammad Aurangzeb has announced that he expects total remittances to hit a record USD35 Billion for 2024 up USD5 Billion from close of business 2023. 

Pakistan almost went into default in 2023 but under guidance from the IMF (International Monetary Fund) have implemented tough economic measures and, in September 2024, received a USD7 Billion loan from MIGA (Multilateral Investment Guarantee Agency, a subsidiary of the IMF). However, Pakistan is loaded with external debt and as of September 2024 this stood at USD133.5 Billion with circa USD30 Billion to be repaid in 2025. Quotes from the finance ministry suggest that these loans will be rolled over or renewed, suggesting that Pakistan is not in a position to repay these loans.

Optimists beware. President elect Trump has already earmarked Pakistan as a harbourer of terrorists and the United States, as of September 2024, has a trade deficit with Pakistan of USD74.6 Billion, which puts the country within the realm of Donald Trump’s tariffs and their various economic ramifications.

The Trump Effect on the Economy of China

Written by Joesph Patterson on . Posted in News & Reports. Leave a Comment

The self-proclaimed “Tariff Man” President elect (and ex-President) Donald Trump will reascend to the White House on 20th January 2025, and one of his first orders of business will be to batter China with 60% tariffs on all their export to the United States. Such tariffs, if introduced, will obliterate China/United States trade and will damage exports which has been one of the bright spots in an otherwise gloomy Chinese economy. However, many experts suggest that the Chinese government might deliberately weaken the Yuan, in order to make their exports more competitive, plus they feel that the broad budget deficit will be increased as well in response to the election of Donald Trump.

The election of ex-President Trump could not have come at a worse time for the Chinese economy, which has been struggling for a number of years. The housing market, once the driving force behind China’s economy, is currently a spent force. Analysts suggest that by close of business 31st December 2024, between completed and still under construction floor space, 2.9 billion square feet will remain unsold housing inventory. The downturn in the property market has left local governments shouldering billions in unsustainable debt, with analysts estimating the size of the debt as in the region of USD20.7 Trillion (Yuan147 Trillion), which as a comparison is just over 50% of the national debt of the United States which stands at USD36 Trillion as of November 2024. 

China has been struggling with weak domestic demand in the property sector, and this has been attributed to high youth unemployment, low pensions and wages and a social safety net which is at best chronically feeble. The net result is China’s household spending is 20% points behind the global average coming in at under 40% of Gross Domestic Product, and the government has to either increase the national debt burden or redistribute the national income in order to boost this sector. Indeed, on Friday 8th November 2024, Chinese officials gave indebted local governments a lifeline of USD1.4 Trillion (Yuan10 Trillion), however many economic commentators who are China focused said that they felt a much larger sum should have been allocated such as USD2 Trillion or above.

Therefore, with a struggling economy and masses of local government debt, it is envisioned that Trump’s administration policy of 60% tariffs on China will negatively impact a number of areas within their economy. If China feels that Donald Trump is serious, then output in the short term may well increase prior to the introduction of tariffs. It is, however, felt by many experts that there will be a long-term negative impact on the industrial activity in China. As mentioned above, the Chinese Government will use monetary and fiscal policy to support the economy (especially the construction and housing sectors), however, the decline in private investment and drastically reduced exports to the United States will outweigh any expected fiscal and monetary offsets. 

Elsewhere, experts suggest that another sector to be hit hard by tariffs will be the high-tech electronics sector, with advanced production being taken on in countries such as South Korea and Japan. Tariffs may well also restrict the flow of knowledge, thus eroding competitiveness and productivity in this sector. Furthermore, supply chains will take a hit as companies seek to reposition their operations away from China in the hope that they will avoid tariffs, with the machinery and automotive sectors being hit hard as parts are traded multiple times across border to border before final assembly commences. 

Many analysts are predicting that a Trump2 Presidency will be more destructive than the previous version, and the effect of tariffs on the USD500 Billion worth of goods will ignite a trade war worse than Trump1. It is expected that growth in China will be slower under a Trump presidency, and some analysts are predicting between 1% and 2% drop in GDP. Other experts suggest a minimal fall, as China will embrace greater stimulus and bolster manufacturing, whilst allowing the Yuan to weaken helping to offset the negative effects of Trump2. 

On the geopolitical front, President elect Trump has promised tariffs of between 150% and 200% should China blockade Taiwan, and China’s continued political and economic support for Russia has not gone down well in the west. If China approaches the European Union to increase exports to the Eurozone, Trump has promised increased tariffs to the EU’s exports to the United States. All in all, from the 20th of January 2025 (inauguration day), the US/China relationship could well have negative effects on a global scale.

The Trump Effect on the Economies of the Eurozone

Written by IntaCapital Swiss on . Posted in News & Reports. Leave a Comment

President elect Donald Trump has vowed once again that in the Trump-2 presidency he will put America first and is considering tariffs on imports into the Unite States. Indeed, he recently showcased what is referred to as “Economic Statecraft”* by threatening two of the United States’ major economic partners, Canada and Mexico, with higher tariffs. In this case, tariffs are being used as an economic wall to halt/curtail the flow of illegal immigrants and cross-border drug trafficking. Furthermore, China is the biggest source of the eurozone’s imports with bilateral trade reaching Euros 739 Billion in 2023. Donald Trump is considering sticking China with 60% tariffs on all exports to the USA and may use tariffs on European countries in the eurozone as a stick to curtail imports from China. 

*Economic Statecraft – Is defined as the use of economic means to achieve foreign policy goals. 

Overview

It would appear that the slogan used by the Republicans and the then ex-President Trump in the run-up to the presidential election of “Make America Great Again”, translates into using economic statecraft to the possible economic harm and certainly disadvantage of their allies. President elect Trump has threatened tariffs on China’s exports to the USA of 60%, plus 10% -20% tariffs on all other imports. Analysts suggest that if a full trade war does indeed commence, the cost to the Eurozone in a combined total of exports is valued at circa USD36. 6 Billion in 2025 and 2026. The President elect is on record as having said the 27 nation bloc will have to “pay a big price“ for not purchasing enough American exports.

Data released by the European commission shows that in 2023, the United States imported goods from the European Union to the value of Euros503.3 Billion, representing one fifth of all non-European exports. Exports from the eurozone to the United States are led by vehicles and machinery (Euros207.6 Billion), chemicals (Euros137.4 Billion) other manufactured goods (Euros103.7 Billion), which together makes up circa 90% of the unions exports to America. Economist suggest that if tariffs are indeed put in place by the Trump administration a collapse in exports would have a detrimental effect on trade-orientated economies with the Netherlands and Germany being the likely countries to be hardest hit. 

Some analysts are even suggesting that a potential upcoming trade war could push an already sluggish Eurozone economy into a potential full blown recession. Analysts are also advising that the Euro could also fall to parity with the US Dollar (first time since late 2022) if a trade war weakens an already under pressure eurozone economy. As of November 2024, the eurozone private sector slipped into contraction, with the eurozone PMI* figures (dropped below the 50 mark) being somewhat gloomy to say the very least, and is a wake-up call for eurozone policy makers that the economy is still showing signs of weakness. 

*Eurozone PMI – This is known as the Eurozone Purchasing Manager’s Index and is a monthly survey of services and manufacturing companies in the Eurozone that measure the direction of economic trends. The PMI is a weighted average of five indices, New Orders (30%), Output (25%), Employment 20%), Suppliers Delivery Times (15%), and Stocks and Purchases (10%). This index ranges from 0 to 100 and anything above 50 indicates an increase, and anything below 50 indicates a decrease. 

In other areas, the elevation of President elect Trump to his second stint in the White House will experts believe, put pressure on the eurozone countries to spend more on defence. Apart from the trade surplus the Eurozone enjoys over the United States, what also rankles with the President elect is that the combined eurozone spending on NATO is only 1/3 of what the USA spends, and noises emanating from team Trump suggest that the United States will expect an increase in defence spending.

Indeed, just USD326 Billion was budgeted by EU governments for defence spending in 2024. Back in 2017, an increase in spending on defence equipment by 35% was budgeted by the European Union, however today only 17% or just under 50% of that figure has been achieved. Furthermore, analysts suggest that the President elect will demand that the EU countries spend at least 2 – 2 ½ %, possibly as much at 3%, of GDP on defence, and it is suggested that countries such as Spain who only spend circa 1.4% of GDP are in his bad books.

Eurozone

Donald Trump’s first presidency was marked by its transactional nature, and he ranked world leaders by his perceived weaknesses and strengths, and in some case his personal taste. The European Union has 27 states and below is an overview of the Trump effect on some of their bigger economies.

  1. Germany

In Q3 of 2024, the German economy narrowly avoided a recession, and with ex-President Donald Trump being re-elected to the White House the current outlook for the German economy is unfavourable to say the least. The incumbent Chancellor of Germany Olaf Scholz made it quite clear that he was supporting Kamala Harris’s bid for the White House, so it will come as no surprise that President elect Trump will have him and Germany in his sights when it comes to tariffs.

Experts are suggesting that the election of Donald Trump to the White House marks the start of what is possible the most difficult economic moment in the history the Federal Republic. Recently Chancellor Scholz fired his Finance Minister Christian Lindner, (leader of the Free Democratic Party, FDP) his coalition partner, and in one fell swoop bringing to an end the ruling coalition, rendering the government a lame duck. This should help Donald Trump once he is inaugurated on 20th January 2025 as German elections are slated for March later that year so the imposition of tariffs may be difficult to fight or get agreement on other issues favouring the United States.

The Germany economy could be in for a bit of a bruising come 2025. If Donald Trump does implement his tariffs, experts suggest the cost to economic output could be circa 1%, and with the German economy predicted to grow by zero percent in 2025, this is bad news all round. Furthermore, some experts are predicting that the German economy (dependent on exports) could shrink by as much as 1.5% in 2027 and 2028. 

Total exports to the United States from Germany in 2023 were valued at USD171.65 Billion, the most important of which were:

  1. Vehicles: USD36.76 Billion
  2. Machinery, Nuclear Reactors and Boilers: USD34.4 Billion
  3. Pharmaceutical Products: USD USD27.51 Billion
  4. Electronic Equipment: USD17.1 Billion
  5. Optical. Photo, Medical Apparatus, Technical: USD12. 67 Billion.

Germanys trade surplus with the United States has been rising since 2020, and data released showed it reached record levels in 2023 of €63.3 Billion. However, analysts have advised that if tariffs are levied between 10% – 20%, exports to the USA could drop by as much as 15%, and Donald Trump with his slogan “America First” will definitely have Germany in sights.

  1. France

Ironically, the re-election of Donal Trump as the 47th President of the United States of America, will strengthen French President Macron’s resolve to build a more autonomous Europe. President Macron is also perceived out of all the European leaders to have at least a half decent relationship with President elect Trump (apart from Premier Victor Orban of Hungary who is deemed to be closer). However, France is in both political and economic turmoil, with Marine Le Pen having brought down Prime Minister Barnier’s government and possibly pushing President Macron into resigning, plus a budget deficit of 6% of GDP and a Debt to GDP Ratio* of 112%.

*Debt to GDP Ratio – This is a metric that compares a country’s public debt to it Gross Domestic Product (GDP). It is a reliable indicator of a country’s ability to repay its debts by comparing what the country owes with what it produces. 

Total exports by France to the USA in 2023 was USD45.54 Billion, (just under 25% of what Germany exports to the USA) the most important of which are:

  1. Machinery Nuclear Reactors and Boilers: USD8.3 Billion
  2. Beverages Spirits and Vinegar: USD4.11 Billion (wine circa USD2.25 Billion/ Euros2.14 Billion)
  3. Pharmaceutical products: USD4.04 Billion
  4. Aircraft and Spacecraft: USD3.97 Billion.

Estimates vary, but one thing is certain, a Trump tariff imposed on French exports to the USA will be particularly damaging to the economy at this time. In 2019, the scope of tariffs were limited to France Germany and Spain, as they were the three counties involved in the Airbus consortium and was part of a dispute on aviation between the European Union and the United States. 

Elsewhere, the French wine industry is still scarred from the harsh 25% tariff imposed between October 2019 to March 2021, and producers are wondering what minefields lay ahead in the export arena to the United States. Interestingly, Trump himself is a wine producer, so the industry may well expect a tariff of a minimum of 10%. 

In light of the present economic and political debacles, plus the fact that France is spending under 2% on defence (expected to exceed 2% by 2029), President Macron can only hope he will retain sufficient authority to negotiate an equable deal with President elect Donald Trump.

  1. Spain

Experts are suggesting that a Trump administration could have both positive and negative effects on the Spanish economy. In many eurozone countries, vehicles, machinery, pharmaceutical goods expect to be at the top of a Trump administration tariff hit list. However, Spain is fearful for its olive oil industry as it may take a significant hit as it did in Donald’s Trump’s first administration. In 2017, the Trump administration levied tariffs on Spanish olives, the reason being subsidies directed at Spanish olive producers through CAP (Common Agricultural Policy) would cause harm to American producers of the same. The tariffs were between 30% and 44% on Spanish black olives being anti-subsidy and anti-dumping duties. 

Spain is the largest olive oil producer in the world and currently their largest export market is the United States, which as of 2023 accounted for 15.7% of Spain’s total olive oil exports. Over the last five years, data released shows that Spanish table olives resulted in a loss of Euros260 Million (USD273 Million) due to tariffs being imposed in President Trump’s first administration, so a second set of tariffs could be a financial disaster for the industry. Elsewhere, the three top exports from Spain to the USA are:

  1. Machinery Nuclear Reactors and Boilers: USD2.96 Billion
  2. Mineral Fuels, Oils Distillation Products: USD1.96 Billion
  3. Electrical and Electronic Equipment: USD1.82 Billion.

On the positive side, Donald Trump’s policies have encouraged capital outflow and foreign investment in foreign countries, with a stable real estate market. Spain is ideal due to its rich culture, a desirable location and attractive property prices, and this could definitely interest US investors looking to diversify their portfolios. A strengthening dollar could see a surge in US tourism with Spain already being a favoured destination for American tourists. 

Donald Trump’s mantra of ‘America First’ means he is always open to deals that favour the USA, so Spain could renegotiate trade deals, but there is one blip on the horizon apart from tariffs. Spain only spends 1.24% of GDP on defence and this, everyone knows, presses all of Trump’s buttons. Spain may well be forced to up their defence expenditure in order to gain concessions on tariffs.

  1. Hungary

Hungary is mentioned on this list as their Premier Victor Orban enjoys a cordial relationship with Donald Trump, and whilst Orban voices his approval of Russian leader President Putin, Donald Trump is certainly fascinated by him. Indeed, when many of the leaders in the European Union were condemning Orban for his pro-Russian stance Donald Trump was heaping praise on him.

However, when it comes to the economy on Hungary,  experts suggest that Trump-2 administration could spell bad news, where his economic policies could add to inflationary risks due to a weak currency (Forint). The economy of Hungary is very “open” economy and is particularly linked to the European auto sector which, in the event of tariffs, could put the Forint under renewed pressure, thereby precluding future rate cuts. Hungary also has very close ties to China, and back in April 2024 borrowed €1 Billion from Chinese Banks to finance energy and infrastructure projects. On top of that, in September 2024 Premier Orban announced that Chinese firms had pledged €9 Million of investment in Hungary.

How the China link will play out with President elect Donald Trump, who is an obvious supporter of Orban, time will only tell. There are many imponderables with Hungary, but due to their personal relationships these problems may well be sorted out on a person to person basis.       

Final thoughts

There are, as mentioned previously, 27 member states in the European Union, and their President Ursula von der Leyen, who is in her second term, must keep the union unified in the face of the policies which will be emanating from the White House post 20th January 2025. The President may well find this difficult because, as in President elect Donald Trump’s first administration, many Eurozone countries beat a path to the door of the US administration hoping to find favour with President Trump and do their own bilateral deals. It is felt the same will happen the second time around. 

Whilst the European Commission has sole responsibility for trade deals for all members, there are smaller options that countries can negotiate with Washington. Furthermore, Trump may pick out Germany and France for special tariff consideration as they are the two biggest economies in the eurozone (and therefore have the biggest influence within the union), plus they both have their own current economic and political problems. Imposing or threatening to impose tariffs on these two countries could be the economic dark cloud that brings the EU in line regarding defence spending. The leaders of the European Union, and their prime ministers and presidents, will be waiting with bated breath as to what President Trump will decide come his ascension to the White House for the second time.

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