After a break of four years, Donald Trump will be the president of the United States for the second time, making him only the second person in history to serve non-consecutive terms.

In addition to the presidency, Republicans have also won the Senate. The race for the House of Representatives is still open, but it is likely that they will also hold the majority there given the party's strong showing in the elections overall.

Tax cuts and tariffs

If this happens, the first consequence will be tax cuts. Their impact on the economy will likely be relatively limited. However, they would put further strain on the national debt, which has already been on an unfavourable course and would increase faster due to the tax cuts over the next few years. 

Irrespective of which party wins the House of Representatives, Trump will likely introduce tariffs on all imports. The exact effects will depend on several factors, but tariffs are likely to dampen economic growth in the US and fuel inflation. As other countries are likely to react with tariffs on US products, new trade wars will emerge. For Europe, which is reliant on trade, such developments would cause strains – particularly for certain sectors. 

But this would not be the only consequence for Europe. The continent is heavily dependent on the US with regard to security. Trump's statements on Ukraine and NATO indicate that the US would be an unreliable partner under a Trump administration. Europe would therefore have to ensure its own security – a challenge in view of the fact that the continent has neglected its defence capabilities for decades and the need for major investments at this point. As other sectors also require investment (climate and competitiveness), there will be considerable pressure on European national budgets.

Stricter immigration policy

Immigration was a big issue in the election campaign. Trump's plan to deport millions of illegal migrants is unrealistic. A number of political, legal and practical hurdles will prevent the removal of a considerable proportion of the country's population. Tightened border controls and stricter asylum policies are more realistic, however.

Financial market response

The financial markets are already responding to the election result. The US yield curve is rising and growing steeper. Investors are thus underscoring the expectation that Trump’s policies will lead to more inflation. As a result, the central bank will not be able to reduce interest rates as much as originally thought. The US dollar is gaining in value and US stocks are doing well, while European equities are lagging behind. This behaviour of the financial markets shows that investors are already pricing in a scenario in which Republicans have full control of congress. Overall, Trump's presidency is likely to strengthen the dollar. However, if tariffs are introduced, this will put a strain on domestic and foreign stocks.

At a time when the international community is drifting apart and the hostile states of Russia, China, North Korea and Iran are stepping up their cooperation, unity in the West would be essential. Trump, however, stands for protectionism and "America First". As a result, there are probably difficult years ahead for Europe – both economically and politically.