Europe will not displace the North -American economic power soon

Welcome again. Right now, two topics are shaping the feeling of the market. First, Donald Trump’s political agenda is committed to the United States’s economic, financial and institutional superiority. Second, relative stability and political developments improve perspectives in Europe.

Reflecting -in March, the Bank of America’s fund manager survey showed the sharpest rotation of North -American stocks and European actions.

A theory that is now being floated as a result of these trends is whether the long -term leading economic growth of the United States has also entered its twilight. For all of my recent We shade -us and Bullish Analysis, I think this notion is overestimated. This is why Europe will not take the United States economic mantle at any time.

First, when it comes to underlying growth rates, U.S. leadership size over Europe is important.

Fitch Ratings has estimated that for the last 5 to ten years, the annual potential supply growth rate of the United States (capitalization of capital, labor and technology) had an average of 2.5 percent. For the euro zone it has been closer to 1 %. This is before assessing the impact of political decisions on both sides of the Atlantic this year.

Trump’s agenda will reduce the productivity of the United States. The rates will create inefficiencies. Uncertainty will invest in investment and research and development of capital. A reduction in immigration and a possible cerebral drainage would also weaken the work supply.

However, the damage caused by the President should be quite extraordinary permanently Andrew Kenningham, economist of Economic Capital: Europe Economics: Europe of Economic Capital:

“The United States has a larger and unified internal market for climbing, a stronger venture capital ecosystem, more world -class universities and lighter tactile regulation.”

In fact, with regard to total contributions, the EU has an advantage in workers and the United States has leadership in physical and financial capital. But the advantage of America’s growth largely emanates From their largest “total factor productivity” or how their entries are used productively.

In Europe, it is possible to increase the growth of capital revenue if investors see the continent as an alternative secure refuge. But the effect may be limited, especially due to investment opportunities.

“If the rotation towards European assets may persist is questionable. Trump’s madness can accelerate the dollar decrease as a reserve currency, but the large capital markets and the liquidity of the United States mean it will be slow,” says Kenningham.

Can Trump therefore make significant and permanent damage in this advantage in economic dynamism? This depends on how it is expected that the rest of his second term will end.

There are checks in the administration. The President has already softened his most extreme fare plans and attacks on the independence of the United States Federal Reserve, in the midst of rapidly increasing long -term bond returns.

It will also increase the broader political pressure. Inflation and unemployment expectations of the year have skyrocketed. The confidence of the Republican consumer, which tends to keep track of the approval grades when Trump is in power, seems to stand.

The impact of existing Duties, particularly in China, will also be filled soon. “The increase in price and shortage in stores will probably be heard from mid -June,” says Paul Donovan, a world economist at the UBS Global Wealth Management. “This will weaken the feeling among more republican voters.”

In the next twelve months, the market expectation is for the United States Effective Effective Rate to last disembarked between 10 and 20 percent still painful, far above 20 percent. Business activity will be affected by continuous uncertainty. Wall Street now sees about 50-50 recession possibilities.

The Republican Party has great majority in the House of Representatives and the Senate. “Often the media make a second term president a lame duck. But at higher prices and unemployment is likely to be heard at the time, this vote may be especially bad for Republicans,” says Matt Gertken, a main BCA Research strategist.

This does not prevent significant damage to the trajectory of the U.S. economic growth. Trump could support -even more in his executive powers. Political risk strategists highlight four main threats: Fed independence, a treasure market accident, capital controls and, in some way, legalize a third term (which would allow policy -sustained damage).

Each could significantly deteriorate the United States economy and set aside its ability to channel inputs productively over time.

But most experts believe that all of these, except the threats to the FED, are low probability events, given the financial market, political and legal obstacles. And even if Trump replaces the FED President Jay Powell, with a head of the most plastic central bank, Cedric Chehab, an IMC’s chief economist, says that other members of the Fed Council and the necessary approval of any new Congressional President will limit the risk of a significant deviation in the approach of monetary policy.

In total, the capital economy does not expect the potential growth rates of the United States or the euro area to change mainly of the historical estimates of Fitch in the long post-trump.

This means that the rates are established 10 percent in the rest of the world and 60 percent in China in his term, and that the president’s commercial and immigration policies are not completed after leaving the post. It also reflects a greater benefit of the artificial intelligence that occurs in the United States with respect to Europe. (Deregulation efforts, such as the most important planning rules under Trump, would also be supportive.)

How likely is this? Given the trajectory of economic sentiment (and limits the compensation of the negative effects of import revenue with tax cuts, as I evaluated in the April 6 edition)), a victory in the presidential election is likely to be 2028 (even if it is not guaranteed).

The last half -century of the survey suggests that party power tends to change hands when voters feel significantly worse at the end of a president’s mandate at first. Except for a most notable fare climb, which seems plausible under Trump.

In this case, much of his agenda could not be unpleasant. Uncertainty would rise. Business investment would pick up. And the capital would probably return to America.

Although imported taxes may be sticky, the economic price of a high fare wall will probably undermine the case of politics for homework over time (as analyzed in the Bulletin March 30)).

This does not mean that the US economy will return to its original growth rate immediately after Trump. Permanent reputational damage is possible (especially if Maga policy lasts). Not all policies could be reversed. But the success of the U.S. underlying rate of the United States will not be as strong as expected.

What about Europe’s ability to catch up? “Slow moving structural factors, such as the growth of the weak population, are difficult to overcome,” says Charles Sevilla, a lead director of Fitch Ratings. “This causes investment, productivity growth and active labor market policies.”

Recent changes in EU economic policy are genuine, but they should not be overcome. The stimulus of the defense and the infrastructure of Germany will increase the growth of the largest EU economy, but capital spending throughout the region is also needed. The broader rearmament of the blog could increase demand instead of growth in the productivity of the tendency, especially if it is spent less on avant -garde technology.

The implementation of the Mario Draghi model to increase European productivity, from capital efforts and the fiscal union to the alignment of the red ribbon, will also face obstacles, says Lorenzo Codogno, former chief economist of the Italian Treasury Department. “The reform process is incremental in normal times. Negotiation to 27 Member States is still a battle.”

Europe’s short -term growth prospects are affected by Trump’s agenda, with the uncertainty exporting the United States and commercial interruption. This risks political bandwidth for reform efforts.

All this suggests that the continent will not be able to make significant raids on the advantage of the growth of the United States, especially when the president’s mandate ends.

Thus, a factor in the current economic leadership of America, Trump’s ability to damage -the efforts of European reform, it is difficult to foresee the advantage of the growth of the United States, which is under the threat of Europe in the medium term.

This may seem counterintuitive, given the current news flow. But the bias of Requencia is common when you see the markets. The obvious risks to my prospects include Trump’s unforeseen and election in 2028.

However, my reference line is that North -American economic exceptionalism leave Trump 2.0 Dentadja, perhaps with permanent reputational damage, as investors take on a more diversified approach to safe paradises and coins reserve. The EU may seem more promising. However, the Delta between America and the growth rates of the tendency in Europe can be surprisingly poorly changed.

Where do your assumptions differ? Do -me to know: freeelunch@ft.com ox @TEPPERIKH90.

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