ING is expecting higher inflation in the Netherlands if Trump wins the US election

Donald Trump returning to the White House would probably lead to higher inflation in the eurozone and the Netherlands. ING economist Bert Colijn wrote this in a report in which he prepares for a possible Trump victory in the United States presidential elections on November 5.

The expectations regarding who is going to win the presidential elections have moved significantly in the last few weeks, with Trump now seeming to be rising in the polls. The financial markets are also seeing an increasing chance of a second term for Trump. According to Colijn, this has led to higher US capital market interest rates and a stronger dollar.

Although the ING economist believes campaign promises should not always be taken literally, Trump's program appears to be fueling inflation more than the plans of Democratic presidential candidate Kamala Harris. Trump wants to lower taxes and significantly raise import duties.

Tax cuts stimulate spending and thus the chance that companies will raise their prices. Trade tariffs also cause higher costs for companies, which they pass on to the consumer.

The increase in expected inflation will cause higher interest rates in the American market. In the eurozone, on the other hand, a faster interest rate decline is expected due to the weaker growth prospects for the European economy.

The larger differences in interest rates between the eurozone and the United States will put pressure on the euro. The weaker euro will make Dutch export goods more attractive for businesses, which will lead to a temporary improvement of the Netherlands’ competitive position outside the eurozone. However, Colijn added that this could change quickly if Trump wins and the import duties are raised.

Higher import prices are also a result of a weaker euro, with fuel prices rising in particular because barrels of oil are paid in dollars. This causes higher inflation. This will not be seen as a bad thing in the eurozone as a whole since inflation has already fallen below the target of two percent.

However, this will be received with mixed feelings in the Netherlands, according to Colijn, as the inflation is expected to stay above two percent for a longer period of time.