US president Donald Trump’s renewed push for unilateralist policies spanning trade, finance, fiscal policy, energy and immigration has far-reaching implications for Europe and the creditworthiness of its member states.
Four Principal Risks
Four principal risks stand out (Figure 1). First, higher tariffs targeting sectors and/or countries – such as China, Mexico, Vietnam, Germany, Japan and Italy – with which the US has a large trade deficit – could disrupt European exports and manufacturing supply chains.
Second, European governments may be forced to increase military spending to reduce reliance on US military and security commitments amid the persistent threat from Russia. Third, on the domestic political front, US support for Europe’s far-right political parties may accelerate instability within Europe, complicating consensus-driven policymaking at the EU level.
Finally, an appreciating dollar driven…
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