Donald Trump. Photo: Alex Brandon / AP / Profimedia
If Donald Trump becomes president of the United States again, the single European currency could come under serious pressure and depreciate below the value of the dollar, according to US investment bank Goldman Sachs. According to the bank’s analysis, a potential increase in US tariffs on imports – a key component of Trump’s policy – could undermine the European economy, especially German industry, which is heavily dependent on exports to the US.
As of Friday, the euro was worth $1.0858, but if Trump returns to office, the currency could fall to parity or even lower. According to manager-magazin.de, Trump’s economic advisers are already discussing plans to introduce a global duty on US imports of 10-20%, and even 60% for Chinese goods. This strategy aims to stimulate domestic production by restricting foreign manufacturers’ access to the US market.
According to forecasts, this protectionist approach will create significant difficulties for Germany, one of the largest trading partners of the United States. According to the latest data, in 2023, the surplus of German exports to the United States reached a record $63.4 billion. During his first term, Trump has already sharply criticised this imbalance and advocated a review of trade relations, including by raising tariffs to level the playing field for American manufacturers.
Dollar and euro: how exchange rate changes can affect the economy
Experts also note that despite Trump’s possible victory and the dollar’s strengthening, he is likely to oppose the policy of a strong dollar. This could weaken his position in the currency markets. J.D. Vance, who is running for vice-president of the Republican Party, even proposes to depreciate the dollar to support the US domestic economy and reduce its dependence on the status of the world’s reserve currency.
Historically, the dollar has tended to depreciate during Republican presidencies, while it has strengthened under democracies. For example, during Trump’s presidency, the US currency lost several percent, while under his successor, Joe Biden, the dollar appreciated again.
Implications for the euro area and potential actions by the ECB
If Trump’s protectionist policies severely hurt European exports, especially from Germany, it could prompt the European Central Bank to cut interest rates to ease pressure on European manufacturers and boost domestic demand. In the event of a rate cut, investors may move more actively from the euro to the dollar, further depreciating the European currency.
This may temporarily help Germany maintain its competitive advantage, as the depreciation of the euro will support the country’s export positions. However, in the context of a possible Trump trade war with Europe, this will only partially offset the negative effects on the German economy.
