Cast your mind far, far back, to November of 2024. Trump had just been elected. Americans were divided and unsteady. But the stock market wasn’t: It was thrilled. Stocks hit all-time highs on the news, and the value of the dollar surged.
The vibes were very different across the Atlantic. European stocks fell, driven by fears of Trump’s tariffs, as did the value of the euro. Analysts expected European economies and markets, which had long underperformed their American counterparts, to fall even farther behind.
Now, though, the vibes have flipped: American stocks are way down, growth projections are shaky, and the dollar is losing value. Meanwhile, many European stocks are up. So what happened?
The answer to that question, like most these days, is Trump.
Specifically the Trump administration’s unprecedented level of antagonism toward Europe. In the administration’s first few months, it’s made clear that it’s ambivalent about military and economic ties to Europe. The message has been, as Vice President JD Vance put it in a recent Signal chat, that the US is tired of “bailing Europe out” — and that it’s time for the continent to stand alone.
That message has been received, especially when it comes to military matters. In the wake of the US minimizing Russia’s aggression in Ukraine and casting doubts about its commitment to NATO, the European Union is now pushing all of its members to raise military budgets and issue debt to fund defense purchases.
This kind of defense spending has all sorts of trickle-down stimulus effects, which are juicing Europe’s stock markets, and making economic experts hopeful about the EU’s economic future.
Take the German car industry, for instance.
“The symbol of European industrial greatness exporting all around the world [has] gone through some really hard times recently with high energy prices, with competition from China, with this looming trade war,” Financial Times Brussels Bureau Chief Henry Foy told Today, Explained. “You’re now seeing discussions about converting mothballed car factories into tank factories.”
Trump’s recently announced 25 percent tariffs on imported cars, set to take effect April 3, may make this repurposing more likely. The CEO of Rheinmetall, Germany’s largest defense company, toured a Volkswagen plant scheduled to shut down in the fall. Rheinmetall — and its suppliers, workers, and partners — stand to benefit heavily from increased defense spending. It has tripled in valuation since January, and is now worth more than Volkswagen.
It’s possible that Europe’s pivot to defense may end up more bark than bite. There is already some bickering about the details, especially about who picks up the tab.
“[But] if you can get the reinvestment right, get the orders in, make it work — it could be a huge driver for the entire economy at large,” Foy said.
And if that happens, Trump will have made good on his promise to usher in an economic “boom like no other.” It’ll just be a boom in Europe, instead of in America.
This piece originally ran in the Today, Explained newsletter. For more stories like this, sign up here.
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