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The prospect of Donald Trump imposing a raft of new tariffs if he wins next month’s US presidential election has hit the shares of export-sensitive European companies such as carmakers and luxury goods groups.
A basket of 28 European stocks exposed to US tariffs compiled by Barclays has tumbled 7 per cent since late September as the former president’s odds of an election victory shorten. The basket, which includes Diageo, LVMH and Volkswagen, is now down 2 per cent so far this year, compared with an 8 per cent rise for the broader European stock market.
The declines show how Trump’s promise to launch a trade war if he wins a second term in the White House is piling further pressure on industries already struggling with lacklustre domestic economies and a slowdown in demand from their key markets in China.
“These sectors are facing a triple whammy of the Trump effect, EU growth stagnation and China’s slowdown,” said Luca Paolini, chief strategist at Pictet Asset Management.
Europe’s equity markets have lagged behind the big tech-powered rally on Wall Street this year, with the S&P 500 up more than 20 per cent. Many analysts expect Trump’s tax-cutting agenda to boost the US stock market, so any damage done to European exporters threatens to widen the disparity even further.
Trump has said he will introduce steep levies on imported goods, setting tariffs at 20 per cent for Europe and 60 per cent for China, prompting the IMF to warn that his policies would endanger global growth.
Emmanuel Cau, head of European equity strategy at Barclays, said markets were being driven by the growing likelihood implied by prediction markets that the Republicans will secure a so-called red sweep, taking the presidency and both houses of Congress.
Cryptocurrency-based exchange Polymarket now puts Trump’s odds of winning the presidency at 62 per cent, up from 48 per cent a month ago.
“In the last month the Trump trade has gone full steam ahead,” Cau said.
The resurgence of so-called “Trump trades” has also boosted the dollar in recent weeks and added fuel to a sell-off in the US Treasury market, given his tariff-driven agenda is expected to increase inflation and interest rates.
Several companies in the Barclays’ basket earn more than 30 per cent of their revenues in the US, including Daimler Truck, chemicals group Arkema and Diageo.
However, some analysts think the gloom around Europe’s markets is overdone.
Hugh Gimber, global market strategist at JPMorgan Asset Management, said that the European markets are trading at a 40 per cent discount relative to the US, partially reflecting the threat of renewed trade hostilities. “This negativity now appears to be well reflected in prices,” he said.
Marc Schartz, a portfolio manager at Janus Henderson, said he expects a broader equity rally following a Republican sweep, that would also benefit European stocks.
“If we get a decisive winner, it will be supportive for markets,” he added.
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