Flint and Highland Global Advisors blog: The “Washington Effect”? The impact of US financial services and economic policy on Europe 

Policymakers often refer to the “Brussels Effect”, the term for how the European Union has historically exerted influence on global regulatory standards through the size of its market and the reach of its rules to market participants beyond the EU. Brussels often pushes more prescriptive rules ex-ante, which have often clashed with the more principles-based approach preferred by the U.S..  

There is no question that Brussels’ global influence on standards setting and regulation remains. However, we are seeing a significant shift in global governance and cooperation, with governments increasingly focused on efforts to protect and support domestic industries, to link economic policymaking to national security, and the diminishing role of multilateral institutions. In this environment, regulatory harmonisation has stalled, and policy fragmentation has increased. The EU’s model of exporting rules through global alignment has lost traction. 

U.S. economic, financial and trade policy in Trump’s second term has accelerated regulatory fragmentation and has forced governments to quickly adapt and, on some issues, in particular trade and tariffs, to negotiate deals with the White House.  

The impact of this approach from the US has been far reaching, including a new baseline tariff cost of entering the U.S. market, a commitment from NATO countries to increase defence spending to reduce reliance on the U.S., and steps to increase domestic competitiveness and capability.  

It poses the question of whether we are witnessing the emergence of a “Washington Effect”. For Europe, the UK, and global investors, an understanding of the Washington Effect and the impacts on financial markets and policymaking will be critical to commercial and operational decision making.  

What is the “Washington Effect”? 

Where the Brussels Effect relies on the extraterritorial pull of EU regulation, the Washington Effect comes more directly from unilateral decisions by the US to attract capital and promote U.S. markets. This should be viewed as almost an entirely self-serving process – the central tenet of the Trump Administration is ‘America First’.  

The Washington Effect takes a number of forms, but is broadly defined by efforts by the Administration to promote a mixture of deregulation, industrial policy, new regulation that promotes markets and incentivises their growth, and the aggressive use of tariffs, all aimed at attracting investment into the United States and reinforcing American leadership in emerging technologies and financial markets. 

There are five main areas where we see this trend manifesting most prominently:  

1. A Determined Push to Lead in Crypto and AI: Washington sees stablecoins, digital assets, and artificial intelligence not simply as emerging technologies, but as strategically vital domains. Policymakers view dollar-denominated stablecoins as an opportunity to reinforce the dollar’s global role, while establishing U.S. leadership in the digital economy. Two major legislative efforts reflect this ambition: 

• The GENIUS Act, which promotes innovation in stablecoins and blockchain-based payments. Implementing rules are in development and expected to take effect in 2027. 

• The CLARITY Act, still in development, which is expected to set foundational rules for digital-asset classification, custody, and risk management. 

2. Opening private markets to retail investors: In August, the U.S. government directed several financial regulators to explore ways of allowing a wider range of private-market investments to be included in 401(k) retirement plans. This is potentially transformative: roughly $9 trillion sits in these accounts, and even small reallocations could reshape global demand for private assets, with an aim is to widen access, enhance returns for savers, and support capital formation in the domestic economy.  

3. Reworking Bank Capital Requirements: The Federal Reserve has signalled that its forthcoming Basel Endgame proposal will be capital-neutral, reversing expectations that U.S. banks would face significantly higher requirements. Alongside this, supervisors are being encouraged to adopt a more targeted approach to examinations, reducing what banks describe as unnecessary burdens. If U.S. banks face lighter capital or supervisory constraints, they could gain competitive advantages over European institutions, especially in global lending, capital markets activity, and investment banking. 

4. Revitalising public markets: Both the previous and current U.S. administrations have expressed concern about the long-term decline in IPO activity and the trend of companies staying private for longer. Washington is therefore exploring ways to make public markets more attractive, including reconsidering certain disclosure burdens and introducing protections against litigation or activist shareholders. These steps could make the U.S. more appealing for fast-growing companies considering listings, adding pressure on European exchanges and posing new challenges for the UK as it seeks to strengthen its own capital markets. 

5. Tariffs as Permanent and Unpredictable Policy Tools: Trump’s use of tariffs as a tool to progress his ‘America First’ agenda will persist. The increased tariff cost of entering the U.S., now 15% for the EU and 10% for the UK for most goods, will remain in 2026, with tariff revenues now part of US fiscal modelling. There may be opportunities for company-specific exemptions, but these will be on a case-by-case basis and almost certainly will only be granted in return for U.S. investment and manufacturing commitments.  

The European response 

Europe finds itself in a difficult position. The region faces modest growth forecasts, significant fiscal pressures, and fundamental long-term challenges including on productivity, competitiveness and the need to ramp up medium-term defence expenditure.  

The European response to Trump has been broadly cautious and has sought to avoid retaliation given U.S. leverage over Ukraine. The EU has signed an agreement on trade that is favourable to the U.S., and is facing pressure to adjust parts of its regulation, particularly related to tech, an issue on which Trump and his Administration have expressed particular unhappiness, but which clashes with European sovereignty.  

Europe knows it needs deeper capital markets, a more integrated banking sector, and faster progress on digital competitiveness. Reports from Mario Draghi and Enrica Letta have set out proposals, but political consensus remains difficult, and the Commission is struggling to build momentum. The Washington Effect may strengthen the argument for accelerating long-stalled reforms. The Commission’s Market Infrastructure Package, due to be announced on 4 December, is likely to propose efforts to remove cross-border barriers to lending and trading, remove regulatory barriers to the use of distributed ledger technology, and strengthen centralised supervision capabilities in certain areas including for crypto-asset service providers. But the extent to which these proposals are implemented, as well as whether the EU can move at sufficient speed, remains an open question. 

On crypto, the EU is currently focused on implementing the Markets in Crypto Assets Regulation (MiCA), which aims to standardise rules on use of and access to crypto assets. Policymakers will be reluctant to allow US stablecoins or digital-payment infrastructures to undermine monetary policy, potentially accelerating discussions on the digital euro. 

The EU’s ESG agenda is a particular area of change, with the Commission driving its simplification agenda on corporate reporting, digital rules and supply chain due diligence. The need for this is more acute in the face of the US’s deregulatory agenda and while this has been a consideration before Trump began his second term, it is clear example of where decision-making in Washington is influencing policymaking abroad. The EU carbon border adjustment mechanism, due to enter into force next year, could provide another flashpoint. 

The UK – caught between Washington and Brussels? 

The Washington Effect has coincided with a challenging economic environment in the UK, not least the fiscal situation that has forced Chancellor Rachel Reeves to increase taxes again in the November Budget, and an almost obsessive push for economic growth.  

The growth and competitiveness agenda has been in train since before Trump’s second term, but his return has forced the UK to be bolder in its approach to home-grown growth. This is visible in how the government is looking at private markets, pensions and retail investment as vehicles to boost UK growth, and in some instances using the US as a case study to see what has worked and what has not. There is wider recognition that alignment with the US can help drive the growth agenda, for example, both sides have established the Transatlantic Taskforce for Markets of the Future, which will look for opportunities for cross-border capital raising and digital asset collaboration.  

There has also been a clear shift in political sentiment on crypto, following the US push in areas such as stablecoins, and this is viewed as a priority area for UK-US alignment. The government is looking to create a more attractive environment for US crypto firms, although this could clash with UK alignment on EU regulation under MiCA, which is one point within a larger question on how the UK will look to balance its ‘reset’ with the EU against its approach to the US. Where the UK lands on the Basel Standards on Bank Crypto Exposures will be a key signal on this question in terms of financial services.  

The UK Prudential Regulation Authority reluctantly agreed to delay implementation of Basel 3.1 and will resist re-opening the standards in any meaningful way, but HM Treasury will have one eye on implementation and are likely to be more sympathetic.    

The focus on ESG has also become less prominent in the UK, with policymakers looking more to economic opportunities from transition finance, although there are outstanding decisions on transition plans that will set the scale of regulatory burden associated with this.  

And fundamentally the UK’s regulatory environment remains more cautious than in the US with regulators wary of who takes the blame when things go wrong.  

The impacts for business 

The impacts of the Washington Effect are still emerging, but its impacts are too large for businesses and investors to ignore.  

Close monitoring of developments in Washington is essential. Trump is unpredictable, but we have seen that he can influenced by external factors, particularly financial markets, and his own popularity ratings. Global companies need to engage with American policymakers or risk being left behind. 

There are difficult decisions ahead for Europe. The main question is whether, and to what extent, the EU will accelerate efforts to build its capital, banking and digital markets, and remove internal market blockages. Engagement with European policymakers has never been more important.  

In the UK, close attention should be paid to how far the Government will go to direct UK investment and whether this creates an unwelcome precedent. Businesses should also think carefully about how to deploy the Washington Effect with policymakers. While the government are focused on the need for growth, regulators will still need convincing, and pushing a US-centric approach will need careful handling. 

This blog was written by Michael Pedroni, Founder and CEO of Highland Global Advisors, Flint’s US partner, David Wright, Flint Senior Adviser and Chair of EUROFI and former Secretary General of IOSCO, and Becky Young, Flint Partner who leads Flint’s financial services practice.  

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