Europe needs to do 2 things to win the trade war — which would simultaneously damage the US economy and infuriate Trump

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  • European companies could benefit from President Donald Trump’s escalating trade war, analysts at Citi wrote to clients.
  • “Winning the trade war, albeit not from the sidelines anymore, remains a real opportunity for Europe,” Citi said.
  • European corporates can steal market share from American firms in markets like China while also benefitting in bilateral trade agreements as US influence wanes.
  • This could lead to both anger from Trump and damage to the US economy.
  • The EU has already threatened to hit the US with retaliatory tariffs on $US300 billion.

As the growing trade war between the Trump administration and the rest of the world threatens to boil over, Europe and European companies stand to be the biggest beneficiaries – if they play their cards right.

That’s according to some analysts at Citi, who believe the burgeoning conflict provides “a real opportunity” for Europe.

Citi’s weekly European economics note, compiled by a team led by Christian Schulz, argues that rising tariffs put in place by the Trump administration could allow European corporates to gain a competitive advantage over their American counterparts.

“Winning the trade war, albeit not from the sidelines anymore, remains a real opportunity for Europe,” the team wrote to clients late last week.

The team’s thesis centres on two arguments.

First, the belief that while tariffs will hurt the businesses of European companies in the US, it will allow them to compete more aggressively with American firms in markets like China.

Second, that the US will damage its international reputation, allowing the EU to become the global trading partner of choice for major economies.

“European companies compete with US firms in key markets such as China and could win market share at the expense of their American counterparts,” Citi’s analysts wrote.

With the US placing tariffs on Chinese goods, and China retaliating in kind, it is likely that Chinese businesses will be more inclined to do business with European companies. This would boost the profitability of major European corporates, which could also have an overall positive impact on gross domestic product.

That same favorability, Citi notes, would most likely shape European Union negotiations over trade with economies all over the world. If the US looks as if it is closing itself off from the rest of the world in terms of trade, it is unlikely that states will be keen to strike deals with it.

By positioning itself as a bastion of free trade, the EU could benefit by gaining favourable terms in trade partnerships.

“The EU’s bargaining power in free-trade talks with third countries rises as the US is no longer an attractive alternative partner,” Citi said.

If these outcomes were to materialise, there would most likely be two major consequences.

First, it could hurt the profits of US companies that lose market share to European competitors, possibly hurting the wider US economy and even global growth.

“In the event of a further noticeable deterioration in trade tensions that could curtail the pace of growth in global trade, our external demand forecasts would likely be revised down,” Citi’s team wrote.

Second, it would most likely anger President Trump, potentially leading to an even greater escalation of the conflict. Trump has not responded well to perceived slights on his policy, as illustrated recently by his angry reaction to Harley Davidson’s announcement of plans to move some production out of the US as a result of his tariffs.

Trump may have perceived Harley Davidson’s move as a personal affront, with the president having hosted company executives at the White House and praised the company for building its motorcycles in America.

Trump has shown willingness to punish those he perceives as slighting him, so European companies benefitting from the tariffs could face a similar treatment, possibly being on the end of even more tariffs in the US.

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