Trump’s presidency will hurt Europe’s economic growth amid renewed trade tensions, Goldman Sachs says

Donald Trump is on the cusp of a landslide victory and a return to the White House.

As the world takes in the results of the US presidential election, regions around the world are determining what a Trump presidency might mean for their economies.

Europe could face a big hit to economic growth as trade tensions increase, Goldman Sachs analysts said.

The analysts downgraded their growth forecasts across the region, down to 0.8% from their previous forecast of 1.1% for 2025. In 2026, the analysts said they expect growth of 1%, down from 1.1% and lower than the consensus estimate of versus 1.4%.

Overall, the analysts expect the Euro area to take a 0.5% hit to real GDP, with the bulk of the downturn set to materialize next year.

The analysts point to renewed trade tensions fueled by Trump’s proposal for sweeping tariffs on all US imports.

More significant than the actual tariff increases, though, will be the trade policy uncertainty that comes with them, the analysts say. That uncertainty will pose a bigger hit to growth than the tariffs themselves, they said.

“The actual magnitude of tariff increases might matter less than the uncertainty created by threatening to impose tariffs on Europe,” the analysts said in a Wednesday note, adding, “The magnitude of the tariff increase, however, is unlikely to be clear for some time, and so we expect a pronounced further increase in TPU in the baseline scenario.”

The firm’s trade policy uncertainty indicator for Europe has already risen in recent weeks as markets increasingly priced in odds of a Trump win.

The analysts acknowledged, though, that while Trump’s 10% across-the-board tariff is a clear risk, they expect his administration to initiate a more moderate set of duties on European countries.

Those tariffs will likely target auto exports, which are worth $80 billion, or 0.9% of EU exports, the analysts said. The duties will have large impacts to GDP in Germany, Sweden, and Switzerland in particular, they added.

During his campaign, Trump proposed raising tariffs on imports from all countries to at least 10%, and said imports from China would be subject to even steeper 60% duties.

The analysts add that a Trump presidency will prompt European countries to up their defense spending to account for a potential decrease in US military support to Ukraine. That wartime support will cost the EU another 0.5% of GDP every year, the analysts say.

The increased spending won’t result in a growth boost, either, they say.

“Any resulting growth boost, however, will likely be limited by modest military spending multipliers in Europe, upward pressure on long-term yields from higher deficits and negative confidence effects from elevated geo-political risk,” the analysts said.

European officials have long warned of huge growth impacts from a second Trump presidency.

Last month, ECB member Joachim Nagel warned a Trump win could hammer growth and send inflation soaring in Europe, and back in January, ECB president Christine Lagarde said a Trump win is “clearly a threat” to Europe, pointing to his tariff plans, commitment to NATO, and climate change policies.