US election: What could a Harris win mean for Europe’s economy?

“My presidency would not be a continuation of Joe Biden’s presidency,” said Democratic candidate Kamala Harris last month, speaking to Fox News.

In terms of domestic policies, this could well be true. Experts have outlined certain policy areas – trade-related and otherwise – where Vice President Harris is ready to move away from her predecessor.

When we look further afield, however, it’s likely that a Harris victory in next week’s election won’t cause much of a global shake-up. At least, economically-speaking.

The same cannot be said about a potential win for rival Donald Trump, also competing for the keys to the White House.

“The main point I could highlight in case of a Harris victory would be, symmetrically, the absence of the negative economic impacts expected for Europe should Trump follow through with his tariff plans,” said Aurélien Saussay, Assistant Professorial Research Fellow in the Grantham Research Institute at LSE.

Tariffs

When thinking about what a Harris win could mean for Europe, Saussay underlined Trump’s stance on tariffs, arguing that it’s essential to understand the alternative to a Democratic win.

Trump has repeatedly claimed that he will introduce either a 10% or 20% universal levy on all foreign-made goods.

He has also proposed a targeted 60% import tariff on Chinese goods, along with a 100% tariff on all imported cars – no matter their country of origin.

“Donald Trump’s proposed ramping up of tariffs, framed as measures to correct trade imbalances and protect industries in the United States, have the potential to significantly reshape international trade relations and supply chains, with notable consequences for the European Union,” said Saussay.

“Some European sectors, particularly Germany’s automobile industry, would be disproportionately affected. Although the 100% tariff on vehicles is particularly targeted at Chinese electric vehicles, Germany would still be likely to experience an economic hit.”

According to recent data from Germany’s Federal Statistical Office, the country’s top export market in 2023 was the United States. This was followed by France, the Netherlands, and then China.

Andrew Kenningham, chief Europe economist at Capital Economics, told Euronews that – in contrast to Trump – Harris “would not introduce across-the-board tariffs, certainly not on strategic allies such as Europe”.

Trade wars

While blanket tariffs on European allies aren’t expected, Harris is nonetheless likely to continue with hawkish trade policies towards China.

Biden this year announced a raft of tariffs targeting imports from the country.

Electric vehicles are subject to a 100% duty. This rate is set at 50% for solar cells and 25% for EV batteries, critical minerals, steel, and aluminium.

Since Europe is more reliant on China than the US, trade policies are likely to remain a point of friction.

Whoever wins the presidential race, it seems there will be pressure placed on the EU to restrict trade with Beijing.

China is the EU’s largest trading partner for goods after the United States, with bilateral trade reaching €739 billion in 2023. 

Emily Mansfield, regional director for Europe at the Economist Intelligence Unit, told Euronews that green policy could also be a “flashpoint” for EU-US relations if Harris were to be elected.

“IRA subsidies in the US (which Harris would keep in place) are controversial in Europe as they risk attracting green investment away from the EU,” she explained.

“And new EU regulations such as the carbon border adjustment mechanism (CBAM) and EU deforestation regulation (EUDR), set to come in in 2026, will raise costs for US firms exporting to the EU.”

The CBAM imposes a carbon levy on certain imported products coming into the bloc, designed to prevent firms from outsourcing production to countries with weaker climate regulation.

The EUDR bans products being imported into the EU if they are linked to deforestation practices.

Despite this potential for disagreement, “A Harris win would broadly mean stability for Europe in terms of the economic impact,” concluded Mansfield.

Fiscal policy

Many analysts expect that if Donald Trump wins the election next week, inflation could begin to rise again.

This is due to proposed import tariffs, which would raise the price of foreign goods brought into the United States.

Suggested tax cuts and proposals to deport migrant workers could also push up costs.

If inflation rises, this could then prompt a hike in interest rates if the Federal Reserve deems it necessary to cool the economy.

In turn, this would send bond yields up – meaning the government borrows at a higher rate of interest.

It’s equally worth noting that high interest rates and bond yields are likely to increase the value of the dollar. This is because the prospect of increased returns usually increases demand from foreign investors for the currency.

Shifts in US yields “would tend to lift European government bond yields, although to a smaller extent,” according to a note from Capital Economics.

It added: “But other factors such as the prospects for ECB monetary policy and fiscal concerns in the eurozone would continue to be the key drivers of the bond market.”

The note also predicted that the euro would not be weakened drastically by a Trump win.

Speaking of a potential Harris victory, Andrew Kenningham of Capital Economics told Euronews that the Democrat’s candidate “would probably not loosen fiscal policy drastically”.

He added that “there would be no reason to expect higher US interest rates or a stronger dollar” in this case.

Although Trump is expected to raise spending, Carl J. Schramm, economist and professor at Syracuse University, argued that Harris would also add heavily to the national debt if elected – which could send up interest rates.

“Her approach would no doubt be guided by the Obama/Biden economics team which has proved totally Keynesian in outlook and action,” he argued.

“Spend and expand the public budget without regard to long term debt and the implications for the dollar.”

According to a study published by the Committee for a Responsible Federal Budget last month, Trump would add $7.5tn US national debt and Harris would add $3.5tn.

A divided congress?

As well as voting for a president next week, US citizens will also vote on a number of other positions – notably who they want in Congress.

“No matter who wins the presidential election, the composition of Congress will matter significantly as it will determine how aggressive either candidate can be with their fiscal agenda,” said Ryan Sweet, chief US economist at Oxford Economics.

If the Democrats manage to win a strong majority in the Senate and the House of Representatives, this would allow them to more easily pass legislation. If not, this could result in lengthy political gridlock.

Either way, a potential Harris win is likely to herald little change for Europe, particularly compared to a Trump victory.