Gilles Moec Macrocast: Electrify Europe
- 25 November 2024 (10 min read)
The appointment of Scott Bessent – generally seen as a pragmatist – at the Treasury, after the more radical Howard Lutnick at the Department of Commerce, suggests that Donald Trump may not have made a hard choice on how far he wants to dial up the pressure on tariffs. We investigate Bessent’s recent comments. As many US economists – including mainstream ones – his main bone of contention with Europe is the lack of demand there, which restricts the capacity to build up a mutually beneficial trade relationship. Developing a proper growth strategy in the EU would not necessarily protect Europe fully from the US protectionist temptations, but it could be a more fruitful strategy, down the line, than merely engaging in retaliatory action, even if it is carefully targeted. Empirical evidence collected across the US at the time of the first trade war with China suggests that even where economic losses from the Chinese retaliation were locally tangible, this did not alter the political dynamics in favour of protectionist policies.
The energy transition could be a key area for such EU growth strategy. This may sound surprising given the current gloom on climate change mitigation. But we think it is worth re-stating that decarbonising is in the economic interest of Europe when one considers the massive income transfers to the rest of the world from the net imports of fossil fuels – notably to the US – and the long-term cost to investment of the volatility which they entail. Further progress on electrification would reduce Europe’s fossil fuel bill. This would come with a daunting investment effort, but rather than seeing it purely as a cost, we should balance it against the tangible economic benefits.
Politics in France and Germany are not conducive for now to the kind of institutional upheaval which is required. In the meantime, the ECB will continue to be crucial to the European outlook. We review the latest dataflow which calls, once again, for a speedy removal of policy restriction.
Disclaimer
This website is published by AXA Investment Managers Australia Ltd (ABN 47 107 346 841 AFSL 273320) (“AXA IM Australia”) and is intended only for professional investors, sophisticated investors and wholesale clients as defined in the Corporations Act 2001 (Cth).
This publication is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Market commentary on the website has been prepared for general informational purposes by the authors, who are part of AXA Investment Managers. This market commentary reflects the views of the authors, and statements in it may differ from the views of others in AXA Investment Managers.
Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
All investment involves risk , including the loss of capital. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested.