Europe’s Economy Faces Sink-or-Swim Moment as Trump Returns

Wall Street’s verdict is clear: A second Trump presidency is likely to deliver a blow to an export-dependent European Union that is struggling with sclerotic economic growth and ever-multiplying political crises. Whether it will finally spark some change is the question for patient investors.

Since Wednesday, the day after the election, the S&P 500 has gained 3.7%. Meanwhile, the Euro Stoxx 50 and the FTSE 100 are down. Among those to shed the most market value have been clean-energy firms such as Vestas, carmakers such as BMW , consumer-goods companies such as Nestlé and Unilever and sellers of pharmaceuticals such as Roche. They all sell a lot to the U.S.

The U.S. is the top goods export market for the European Union, and for Germany, with pharmaceuticals, machinery and vehicles topping the export list.

During the campaign, President-elect Donald Trump floated a 60% tariff on Chinese imports and a 10%-to-20% levy across the board. The think tank German Economic Institute estimates that such a measure could make the German economy between 1.2% and 1.4% smaller than it would have been by 2028.

The core of the European Union’s export machine has been plunged into difficulties because of the end of cheap Russian energy, delays in joining the electric-vehicle revolution and an over reliance on selling to China.

Volkswagen last week announced the closing of at least three plants in Germany. According to FactSet, American customers make up 18% of its sales, about the same as the German market.

“I want German car companies to become American car companies,” Trump said last month while holding a rally in Savannah, Ga. “If you don’t make your product here, then you will have to pay a tariff, a very substantial tariff,” he added.

On Wednesday, Oliver Zipse , chairman of German carmaker BMW, underscored that the company has a plant in Greer, S.C.

“The most demanded vehicles in the United States, we produce there,” he told analysts Wednesday in a conference call. “So there is some natural cover against possible tariffs.”

Volkswagen and Mercedes-Benz have factories in Chattanooga, Tenn., and Vance, Ala., respectively. Manufacturers Airbus , Siemens and BASF also service the U.S. market from within, as do Nestlé and Unilever.

Much depends on details. In early 2021, Airbus’s assembly line in Mobile, Ala., was forced to pay tariffs for its shipments of fuselage, wing and tail components from France and Germany, as part of a World Trade Organization dispute. An agreement was quickly reached to suspend them.

Regardless, building up capacity to service all types of American-based demand would be hard. The Mobile plant makes A220 and A320 jets, but A330 and A350 wide-bodies are assembled in France. Volkswagen uses Chattanooga for the Atlas SUV, the Passat sedan and the electric ID.4, but the bestselling Tiguan and Jetta are built in Mexico. Roughly a quarter of U.S. imported cars originate there, and Trump has suggested that a 200% tariff could be slapped on them.

And when it comes to high-performance models, most EU firms still make them domestically and ship them over. Exports to the U.S. amounted to about 800,000 cars in 2023.

To be sure, EU leaders have struck a conciliatory tone with Trump this week, suggesting that a more amicable endgame such as the 2018 trade deal between the U.S., Canada and Mexico is possible.

Another risk is that China would send even more cheap goods to Europe if the U.S. ratchets up its trade war with Beijing. Yes, recent experience shows that China often just reroutes exports through third countries—and, as of recently, faces higher tariffs for electric vehicles in the EU anyway—but even small shifts could have big effects.

For a decade and a half, the 27-nation bloc has limped along, fostering just enough political change to avoid a painful breakup during the debt crisis of the 2010s and the 2020 pandemic, but never enough to truly invigorate its economy. Attempts by France’s Emmanuel Macron and Germany’s Olaf Scholz to change course have ended in paralysis. Scholz’s three-party government collapsed this week, after years that saw the coalition’s pro-austerity member blocking efforts to spur domestic industry with public spending.

Yet the first Trump presidency did galvanise some early support for a cohesive industrial strategy in Europe. The long-term bull case for European equities is that Trump 2.0 will be a catalyst for further transformation. European Central Bank President Mario Draghi published a report in September urging less red tape, state aid to key sectors and, where appropriate, harsher tariffs, all of which has buy-in from officials in Brussels.

On a small scale, the impulse toward a European industrial policy is already playing out. European defence contractors such as BAE Systems, Rheinmetall and Thales have seen their shares jump on the expectation that less American military involvement in Europe will force governments there to rely on their own capabilities. By 2030, the EU wants members to direct 50% or more of their procurement budgets toward European contractors.

Elsewhere, substituting foreign markets for domestic consumers will prove much harder, though providing advantages to buyers of electric vehicles has proved extremely effective in Norway. They now outnumber cars that run on gasoline.

Caught between the U.S. and China, Europe’s economic strategy is soon to face its biggest challenge since the eurozone crisis. Investors are right to be wary.

Elon Musk’s SpaceX is set to make its stock-market debut Friday in the largest IPO ever—and perhaps the most closely watched. The company sold an outsized portion of the offering to individuals. Its performance on Friday will be a crucial gauge of investor appetite for mega-offerings from OpenAI and Anthropic expected later this year.

The rocket maker, which derives most of its revenue from its satellite internet unit and has a nascent artificial-intelligence business, will trade under the ticker “SPCX.” It sold 555.6 million shares at $135 each, raising about $75 billion in a deal that valued the company at roughly $1.77 trillion.

When will shares open for trading?

SpaceX executives are set to ring the Nasdaq’s opening bell in New York, but shares in buzzy initial public offerings don’t tend to start trading until later in the day.

Bankers leading an IPO typically want to match buyers and sellers for about 10% of the shares sold before opening trading to lessen volatility. For SpaceX, that would be about 55 million shares, or roughly $7.5 billion worth.

Because pre-IPO investors are restricted from selling shares for a while, it can take time to find willing sellers among those who bought shares in a high-demand IPO.

Shares of Alibaba , the largest U.S. IPO until SpaceX, opened for trading a little before noon in its 2014 offering. Last year, one of the highest-profile offerings was that of software maker Figma , whose shares started trading just before 2 p.m.

It is possible that SpaceX’s bankers will decide to start trading without matching the typical portion of orders to ensure the shares have several hours of trading on their first day, people familiar with the matter say.

How volatile will the stock be?

Bankers and traders expect SpaceX’s share price could be volatile in initial trading, thanks in part to the large portion of its shares expected to be held by individual investors. Some who anticipate individuals will rush into the shares worry they could just as easily get spooked and rush out.

Any sharp movement in stock price could trigger so-called circuit breakers that could pause trading. For most newly listed companies, a 10% swing in either direction prompts a five-minute pause. Companies that had their shares halted include Figma and Cerebras Systems , the chip company whose shares soared in its May debut.

These forced timeouts applied to single stocks came after the so-called flash crash in 2010, when the Dow Jones Industrial Average fell 700 points in eight minutes before recouping much of the loss.

What is all the talk about the ‘green-shoe’ option?

If the stock starts trading erratically, bankers have a secret weapon to attempt to calm things down.

Underwriters typically sell more shares to investors than an IPO’s total offer size, colloquially called the green shoe. In SpaceX’s case, they sold about 15% more shares than the stated offering size.

Because this means they technically allocated more than the offering amount, the so-called stabilisation agent, in this case, Morgan Stanley , needs to buy back the excess number of shares to deliver them. If the stock starts to fall, the bank will buy the shares in the open market, which helps buoy the stock price. If the stock isn’t faltering, the stabilisation agent can buy the additional shares they need to deliver to investors directly from the company.

The term “green shoe” comes from the first company to employ a version of this method years ago, a shoemaker that was a predecessor to Stride Rite. When Meta Platforms , then known as Facebook, went public in 2012, its shares started dropping and its bankers stepped in to buy more shares.

How will Elon Musk’s take-it-or-leave-it pricing fare?

Like all things Musk, SpaceX’s IPO bucked the norms. Instead of approaching prospective investors with a possible price range for shares ahead of the IPO and incorporating their feedback, the company set an exact share price from the beginning: $135.

The idea was to limit drama for what is already the biggest IPO of all time. It did, however, remove what many see as an important step along the way: price discovery. The success of this approach will partly be judged by how SpaceX’s shares trade Friday. If the stock surges, critics will say SpaceX left money on the table by not pricing shares higher. If the stock falls or trades flat, there will likely be critiques that SpaceX and its advisers overestimated demand.

Will the machinery hold up—and what will be the wider market impact?

The sheer size of SpaceX’s IPO will test the trading infrastructure at Nasdaq and could have ripple effects in the broader market.

Nasdaq has practiced with mock openings to make sure its trading platform is prepared. When Facebook went public, some investors who tried to change or cancel orders ahead of trading didn’t get confirmations because of a technology malfunction. The confusion contributed to Facebook shares dropping on the first day of trading. They didn’t return back above their IPO price for more than a year.

Meanwhile, some market watchers expect added activity Friday in stocks that individual investors might sell to buy SpaceX shares, such as those of technology companies and Musk’s electric-car maker Tesla . Such sales already appeared to be under way earlier in the week, when individual investors dumped single-stock holdings on a net basis for two days in a row, according to Vanda Research. (To be sure, those sales came on days that were poor showings for tech stocks broadly.)

It will take several days for SpaceX shares to show up in any major index funds , so the offering’s wider impact on the market could play out over the next several weeks or longer.