Four questions concerning the outcome of the U.S. Presidential election

Capitol in Washington, DC, in Autum, © Fotolia/Imel900

© Fotolia/Imel900

The United States is one of Germany’s main trading partners. In 2015, it was the largest market for German merchandise exports. So what does the election of Donald Trump mean for German business? Stormy-Annika Mildner, Head of the department for External Economic Policy at BDI and B20 sherpa, addresses this and other questions.

What do we know about the new President’s economic policies?

Donald Trump has not released many details on his plans for the economy since election night. So all we have to go on for now is the proposals he campaigned on, many of which were alarming. Trump ran on a platform of isolationism. He promised to bring back manufacturing jobs from overseas, clamp down on immigration, and renegotiate the North American Free Trade Agreement (NAFTA). He explicitly rejected the Trans-Pacific Partnership (TPP) and promised a 15- to 35-percent tax hike for firms moving production abroad, unconcerned about the harm this could do to the global economy. He even said he could imagine the United States leaving the WTO. His campaign set a very clear priority: “Americanism, not globalism”. In order to boost the domestic markets, he also announced the biggest tax reform since Ronald Reagan, promising benefits to businesses and households in all income classes. He wants to strengthen the U.S. automobile and steel industries and give more jobs to Americans. To date, Trump has placed his faith in economic policies that failed under Ronald Reagan: tax cuts for the rich to boost growth, with a “trickle-down” effect supposedly benefiting the “middle class”. But that rarely works automatically. Under Reagan the budget deficit and state debt exploded, while the economic benefits were a great deal weaker than expected. The U.S. national debt has remained high ever since. Although the current level of annual borrowing is in fact relatively low at about 3 percent, the debt will burden future generations if this problem is not tackled. As yet Trump has offered no solution for this. In short: his economic programme was disappointing.

What does Donald Trump’s victory mean for Germany?

First of all, German businesses are very unsettled. One can hope that many of his statements were just campaign rhetoric. But his great focus on protectionism and the domestic market is certainly grounds for concern. Here he is ignoring the realities of the global economy in the 21st century, where value chains are long and manufacturers source their inputs globally. If the United States really does restrict these trade arteries, it will harm American companies as well as companies around the world. German firms would be badly affected, as the United States was the biggest market for German merchandise exports in 2015. And Donald Trump also lacks political experience. His positions are erratic, his speeches often hot-headed. Even with the benefit of the doubt, a clear line or strategy is not discernible. Of course the U.S. President does not govern on his own, Congress controls many of the levers of power. But foreign policy lies largely in the President’s hands. In his victory speech Trump said that the United States will have great relations with all other nations. That will mean walking back many of his earlier statements. I certainly hope that is what he will do. If not, there may be trouble ahead for transatlantic relations. The United States remains one of the most important partners for shaping globalisation, reviving the global economy and tackling geopolitical crises. Even if it faces many domestic and social challenges, it remains an enormously important global leader. Europe needs a strong partner.

What does Trump’s election mean for TTIP?

Here too, we have to hope that Trump will reconsider his trade plans and set aside his campaign rhetoric. Otherwise he will do considerable harm to his country. Because on balance the U.S. economy also profits from open markets. American businesses depend on technologies and inputs from elsewhere. During the campaign, the discussion revolved largely around the Trans-Pacific Partnership, while TTIP was rarely mentioned. Many Americans fear that TPP will expose them to competition from low-wage economies, which does not apply to TTIP. But Donald Trump’s election does create great uncertainty over the future of TTIP. We will continue to work for a fair TTIP agreement.

What are the challenges facing the United States?

Today the U.S. economy is in considerably better shape than in 2012, when Barack Obama won his second term. GDP is growing, slowly but steadily, and unemployment has fallen to about five percent. But Trump and his Administration will have to deal with great challenges. The debt remains high, and new initiatives are needed to repair and expand infrastructure, education, and healthcare. President Trump will also have to take action on urgent social issues. The United States is divided, with increasing numbers feeling ignored and misunderstood by politicians. Massive income inequality and a lack of social mobility put the “American dream” out of reach for many. Trump’s campaign scored on these issues – but with the rhetoric of exclusion and scapegoating: against immigrants, unfair Chinese competition, and the Washington elites. Now his challenge is to unite society. If he is to succeed in that, he will have to operate very differently as a president. His victory speech struck a gentler tone towards his opponents, saying he wants to be a president for all Americans. It remains to be seen whether he will retain this conciliatory stance, and which of his campaign promises – many of which could also be described as “threats” – he actually implements.