Trade Risks from Policies under the Next US Administration Most Likely to Impact Europe, UK

Regardless of the winner in the U.S. presidential election in November, the next administration’s trade policies will most likely affect European companies, especially those in export-focused sectors like manufacturing, machinery and transportation goods.

"The next U.S. administration's stance on some existing and prospective trading relations will strongly indicate its willingness to enter into new international trade agreements, a key consideration for European, and in particular UK-based companies as Britain prepares to exit the EU," says Richard Morawetz, a Moody's Investors Service group credit officer for the Corporate Finance Group and author of a new Moody’s report. "That said, we believe that there would be an incentive for both countries to maintain strong trade links, although the U.K. is more reliant on the U.S. for trade than vice versa."

The European automobile and manufacturing sectors have the most exposure to U.S. trade policies, while European and Middle Eastern companies working in the U.S. healthcare market could experience new pricing pressures arise with the uncertain survival of the Affordable Care Act under new leadership, Moody’s analysts said. On the other hand, both presidential candidates’ support of increasing infrastructure spending could bode well for European firms that supply cement and ready-mixed concrete to the US construction sector.

A continuation of the status quo to a “gradual retrenchment from trade and investment ties and curbs on immigration” account for the general range of policies under the future president, said Marie Diron, senior vice president/manager of the Sovereign Risk Group at Moody's Investors Service Singapore. Under a new administration, Asian economies—including Malaysia, Taiwan and Korea—that export high value-added manufacturing products to the U.S. carry more vulnerability to policies that discourage foreign sourcing of business activities, she said.

If the United States decided to strengthen immigration rules, remittances to Asia could decline. However, the Philippines and Vietnam, which have the largest remittance receipts from the U.S. in comparison to the size of their economies, have current account balance surpluses that likely would buffer such negative impacts, Diron said.

Remittances and trade in the Middle East and North Africa could also be affected, though the effects probably would be limited to countries such as Lebanon and Jordan, according to Mathias Angonin, an analyst in Moody's Investors Service Middle East Limited Sovereign Risk Group. "Outcomes could range from lower access to the U.S. for MENA countries' non-oil exports, to curbs on aid to and immigration from Levant countries," he said.

- Nicholas Stern, editorial associate

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