Trump’s Re-election: Economists See Predominantly Negative Consequences
On November 5, 2024, Donald Trump won the presidential election in the United States. The Republican candidate Trump won the election by the clear margin of 312 to 226 electoral votes against his Democratic opponent Kamala Harris. He will therefore embark on his second term as President of the United States on January 20, 2025. The US election attracted a great deal of attention in Europe and Germany, as the US President’s decisions also have a considerable influence on political and economic events here. That is why the 49th Economists Panel of ifo and FAZ is analyzing the economic effects of the US elections and asked economics professors how they assess Trump’s re-election in terms of growth, trade and exchange rates. 180 economists took part in the survey conducted from November 12 to November 19.
Negative Growth Impetus for Europe and Germany
A key question in the area of economic policy is how Trump’s return to the White House will affect economic growth. The economists were asked about the direct effects in the United States and the indirect consequences for Europe and Germany. For Germany, the participating economics professors expect predominantly negative growth effects. For example, 20% expect very negative growth effects and a further 69% expect fairly negative growth effects. Only 7% assume no influence and just 2% expect fairly positive effects. 2% say they “don’t know.” One possible reason for these pessimistic expectations might be Trump’s announced trade policy, which could hit the export-oriented German economy in particular. A similar picture emerges for the European economy: While 11% expect very negative effects on growth, 76% anticipate fairly negative effects. Only 9% do not expect any influence and just 2% assume fairly positive effects. 2% likewise say they “don’t know.” The situation is different for the United States. Here, the opinions of the participating economists are divided: 7% and 35% expect Donald Trump’s election to have very negative or fairly negative effects on economic growth respectively. At the same time, 38% and 5% expect fairly positive or very positive effects respectively. These optimistic expectations could be due in part to the massive tax cuts announced by Donald Trump.
All Areas of International Cooperation Negatively Affected
Donald Trump’s first term in office (2017-2021) clearly demonstrated his disruptive approach to international cooperation. Under his leadership, the United States withdrew from the Paris Agreement and he threatened to leave NATO. Against this backdrop, the economists were asked about the effects of Trump’s re-election on various areas of international cooperation. Economists are particularly critical of the impact on measures to combat climate change: Over 70% expect very negative consequences and a further 20% fairly negative consequences. More than 90% of participants also see predominantly negative effects in international trade policy, which could be due to Trump’s announcements of new tariffs. One exception is the resolution of current conflicts such as the war in Ukraine, where around 25% of participants also expect positive effects – although this remains a minority opinion. For international security and cooperation within NATO, however, the assessments are clearly negative: 80% expect predominantly negative consequences. Asked in general about cooperation in international organizations, 53% of economists expect the new US President to have a very negative impact and a further 40% a fairly negative impact. The results show that the international community must brace for a deterioration in cooperation on the part of the United States and difficult times ahead.
Economists Expect Increase in US Import Tariffs
A key issue in Donald Trump’s election campaign was the introduction of new tariffs, particularly on products from China, but also from other regions of the world. Accordingly, a clear majority of the participating economists (74%) expect sharp increases in or the introduction of new US import tariffs on Chinese goods. A further 25% expect moderate increases. The majority of participants also anticipate rising US import tariffs for products from the EU, albeit to a lesser extent. Only around 23% expect a sharp increase in tariffs here. These figures make it clear that the economics professors assume that Trump will make good on his election campaign announcements and that world trade is facing uncomfortable times.
Reaction to Trump’s Trade Policy with Higher Tariffs
In view of Donald Trump’s existing threats to impose substantial basic tariffs on US imports from the EU and 60% on imports from China, economists in Germany were asked what reaction they expect from the EU and China. The question is predicated on the scenario that Donald Trump implements his announced protectionist trade policy and, for example, imposes 10% import tariffs on all goods and 60% on goods from China. For the EU, 47% of participants expect higher tariffs in response to the tariffs imposed by the United States. Approximately 20% indicate no change or lower tariffs compared to the United States. No reaction is expected by 9% of economics professors. A stronger reaction to possible import tariffs is expected by the participants for China. The majority of participants (54%) believe that China will respond with higher tariffs compared to possible US tariffs. Around a third expect equally high tariffs in response and only just under 10% of participants expect lower tariffs. 2% expect no reaction from China. 3% say they “don’t know.”
Economists Expect the Dollar to Appreciate
Trump’s victory and the resultant negative impact expected on the European economy could put pressure on the European single currency. We therefore asked economists for their assessment of how the euro-dollar exchange rate would develop. Almost half of the participants see a weak appreciation of the dollar as a result of Trump’s election victory. Only 8% expect a strong appreciation. Increased investment in the United States and the growing attractiveness for investors are cited as reasons for the dollar’s appreciation. The opposite is expected by 18% of participants, with a small proportion stating there will be a strong depreciation of the dollar. 13% of economics professor say there will be no change in the euro-dollar exchange rate. 16% say they “don’t know.”
Germany Ill-Prepared for Trump’s Second Term in Office
Donald Trump as the next President of the United States of America poses numerous challenges for Germany. Do economics professors think Germany is well prepared for a second Trump term? An overwhelming majority of participants (85%) do not consider this to be the case and answered no. The majority of respondents stated that no or insufficient preparations had been made. The majority attribute this failing to the ruling coalition. Participants see backlogs in military investments and the status of de-risking at German companies. There are also no in-depth measures to protect the German economy against trade and foreign policy shocks. According to participants, the focus has been on free trade for too long and the necessary trade agreements have not been agreed in good times. This is compounded by the fact that Germany’s economy is weakening at present and by political uncertainty following the collapse of Germany’s ruling coalition. There are also complaints about the lack of a uniform European response. Another reason why Germany is ill-prepared for Donald Trump’s second term in office, economists say, is that people hoped for Kamala Harris’ victory for too long. Only around 4% see Germany as well prepared. 11% say they “don’t know.”
