The current geopolitical situation remains characterised by a high degree of uncertainty. With the upcoming US presidential election and the possible re-emergence of Donald Trump as a key player, both transatlantic relations and the global trading architecture are facing new challenges. The European economy in particular is likely to be hit by increased volatility.
Trade and Currency Risks From US Policies
One of the most striking features of Donald Trump’s policy is its ‘unpredictability’. Yet economic stability is based on predictability, especially in international trade. The volatility of US foreign trade policy, exemplified by sudden increases and decreases in tariffs, makes long-term investment decisions difficult. Companies with global supply chains are particularly affected.
The increase in US tariffs on China has been expected for some time. However, the CNY has lost around 10% of its value against the USD since the beginning of 2023, which has partially offset the additional burdens for Chinese exporters. At the same time, Chinese companies have strategically diversified, building production capacity in Mexico, ASEAN and Hungary. Europe, on the other hand, is increasingly being left behind due to a lack of strategic flexibility.
The Systemic Risk of Europe’s Economic Weakness
The political situation in Europe is fragile. There is growing political instability in Germany and France, fuelled by the rise of Eurosceptic movements. This development threatens the internal cohesion of the European Union, as one of its key binding elements – rising prosperity – has been severely eroded since the 2008 financial crisis. The transformation of the PIGS crisis into a core crisis shows that structural weaknesses no longer only affect the economic periphery, but are increasingly undermining the pillars of the eurozone that previously supported it.
Russia and the New Geopolitical Order
Russia is closely monitoring the situation and positioning itself for possible negotiations with the US. Moscow’s strategic agenda is likely to focus on three key demands:
- Release of frozen foreign exchange reserves and a gradual easing of sanctions.
- Recognition of Russian territorial gains in eastern Ukraine and a Ukrainian withdrawal from the Kursk region.
- A treaty guaranteeing Ukraine’s neutrality and the renunciation of NATO membership.
The military toll and the economic burden make such a solution increasingly attractive to Russia. At the same time, Ukraine is unlikely to last more than six months without Western support. The appreciation of the ruble in recent weeks already signals an anticipated geopolitical realignment.
Turkish Economy: Set to Stabilise?
Turkey could be an unexpectedly positive factor. Geopolitical dynamics – in particular the possible end of the Assad regime in Syria and a peaceful resolution of the Ukraine conflict – could provide a positive impetus for the Turkish economy. The lira has been under considerable depreciation pressure in recent years. However, an easing of geopolitical risks and economic rapprochement with the EU through strategic trade agreements could lead to stabilisation. Structural challenges remain, but the likelihood of a moderate depreciation of the TRY rather than a rapid fall is increasing.
Summary
Growing pressure on Europe to adapt. The European economy faces growing external uncertainties. While China diversifies its supply chains and the US pursues an unpredictable trade strategy, Europe remains structurally vulnerable. Geopolitical developments, particularly with regard to Russia and Turkey, are likely to permanently alter global trade patterns in the medium term. Businesses and investors should therefore build more strategic flexibility into their planning to successfully navigate the continued high level of uncertainty.
Our last article
