As global financial markets fluctuate significantly due to the tariffs stemming from President Trump, European investors are maintaining a relatively composed demeanor.
The New York Times (NYT) analyzed on the 16th (local time) that this is because Europeans have a higher proportion of cash holdings and a traditional investment tendency to shy away from stock investments compared to Americans. However, experts warn that Trump's tariff policy could eventually impact the European economy.
For example, in the case of retiree Suzie James, who lives in Wales, England, she is keeping her retirement funds in cash assets without significant anxiety despite the recent volatility in the stock market. She stated that her distrust in stocks grew after experiencing both Black Monday in 1987 and the financial crisis in 2008. Households in Europe, like the James couple, which adhere to cash-oriented asset management, are significantly more prevalent than in the U.S. According to the European Central Bank, Europeans hold one-third of their financial assets in cash or low-risk deposits, whereas Americans only hold about one-tenth.
This conservative attitude allows European investors to maintain a relatively defensive position even in the face of Trump's tariff policy disrupting the global economy. However, concerns are also emerging that losses may be inevitable in the long term. Christine Lagarde, President of the European Central Bank, pointed out that 'Europeans have missed out on the stock market rise over the past few decades and have lost trillions of dollars in wealth.'
The proportion of stock investments among EU households is lower than in the U.S. According to the European think tank Bruegel, 33% of European households are investing in stocks or funds, whereas the U.S. figure is 51%. There are also regional disparities within Europe. Nordic countries like Sweden have a high investment ratio, while Southern European countries like France, Italy, and Spain are below 30%.
The main reasons for hesitance in investing include complex procedures and high expenses. Rebecca Christie, a senior researcher at Bruegel, noted that 'while low-cost index funds have been popularized for a long time in the U.S., it is not the case in Europe.' Europe has tangled laws regarding corporate, tax, and securities regulations, making it challenging for the general public to access investments.
Retirement structures also impact investment behaviors. In the U.S., defined contribution retirement plans that allow individuals to invest directly in stocks are commonplace, but Europe still relies heavily on defined benefit systems and relatively robust social security. Experts analyze that this structure is contributing to the widening asset gap between the U.S. and Europe. In fact, President Lagarde previously stated that U.S. household assets have increased about three times more than EU households since 2009.
However, Europe is not always resilient to market shocks. Nathan Sheets, Chief Economist at Citibank, warned that if the prices of European products rise in the U.S. due to Trump's tariff policy, demand may plummet. This could restrict production and employment among European corporations, leading to an overall slowdown in growth. A bigger problem arises if China dumps low-cost products in markets outside Europe to avoid tariffs. He stated that 'the most fatal consequence of the trade war is the uncertainty of demand,' adding that 'this could ultimately hit European households and the real economy.'