American roulette

By Katarzyna Mirecka and Krzysztof Głowacki, Economists, CASE

When all is said and done, and the dust settles, nothing is as it was before, and yet nothing is certain. What is to be expected from Trump’s victory in the US Presidential election for the world and specifically for Central and Eastern Europe?

Many politicians in the region share the same political mindset as Trump, with the leaders of Hungary and Poland appearing particularly content with his election. Most probably, the new American administration will be putting less pressure on the cabinets in Poland and Hungary to abandon recent populist actions, a relaxation which will strengthen their position at home and abroad. However, there are real fears of a rapprochement with Russia, leading to cancellations in military assistance: in particular, NATO’s anti‑missile complex Aegis Ashore, scheduled to go live in 2018 in Radzikowo, Northern Poland, has a high chance of being scrapped. Likewise, the 2016 NATO Summit in Warsaw resulted in a decision to allocate four NATO battalions in Poland and the Baltics, but the deal is now far from certain, and the same applies to the prospective allocation of a US armored brigade in Poland. On the other hand, Trump’s condemnation of Western Europe for neglecting its defense spending and his praise of Poland for doing the opposite means that neither route is certain.

Economically, Trump’s election likely means a much harder road for the Transatlantic Trade and Investment Partnership (TTIP), a lost chance for needed liberalization and perhaps a harbinger of protectionism. In general, though, the political turmoil in the US has less potential to affect Central and Eastern Europe economically than it will Western Europe and the Asia-Pacific. Currencies in the CEE region depreciated slightly in the wake of the election, as usually happens with peripheral currencies in the times of uncertainty, but the effect of this shock was absorbed by the appreciation of the euro.

For Ukraine, Trump’s election may be a catastrophe if the rapprochement with Russia means a total US disengagement. Russia, in the meantime, is preparing for a strategic pause to catch its breath, including a possible lift of Western sanctions. In the longer run, as Putin proceeds to capitalize on a new set of options, the picture may become inverted. Trump’s erratic approach to policy makes him a good target for provocations, which are a favorite tool in Russia’s political toolbox.

Trump was an eccentric candidate, and it remains to be seen whether he can become a political leader. In the process, he will face a plethora of state institutions that are keen on keeping the country on its current course, including Congress, the intelligence community, and the military. The ultimate outcome of his administration will be how Trump’s governing style can overcome political inertia in the US. Both of them are about to be put to a hard test.

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