The US-elections will take place on 5 November 2024: voters will select a new president, the entire House of Representatives and one third of the US-Senate. This election highlights the political situation in the US and telegraphs potential changes. And of course, any political and economic developments in the USA will significantly affect the economy and businesses in both Germany and Europe.
Transatlantic economic relationships
Europe and the USA are very closely connected by trade and reciprocal investments: this interconnectedness influences many things, including the financial markets. The economic and political situation in the USA remains highly relevant for the economy in both Germany and Europe.
Both economic areas are, in some instances, facing similar challenges, despite their structural differences. These include modernising industries and public infrastructure, and increasing both productivity and competitiveness on a global scale. In addition, in light of geopolitical tensions, it is essential that both strengthen their entire economies, while changing demographics require introducing methods for ensuring continued prosperity.
Whether and to what extent the framework conditions for trade and investment can be predicted, and what will happen in the event of another global crisis, will have a major impact on Germany’s economy. As will whether or not Berlin and/or Brussels and Washington will be able to work together successfully in the coming years.
Experience gained from four years of a Trump presidency and four years of the Biden administration can provide clues as to how politics in the USA might look over the next few years – depending, of course, on the outcome of the election. Additional information can be gained from the candidate’s election platforms and the statements they have made during their campaigns over the last few weeks and months. All things considered, this is a small amount of data to base predictions on. However, there do seem to be a few emerging trends in regards to economic policy.
If Trump wins: tariffs as a foreign policy instrument
A second Trump presidency might, when it comes to international trade, rely more strongly on tariffs and other trade restrictions, causing significant changes to global trading conditions. Tariffs imposed on China will no doubt feature prominently, but other countries are also likely to be affected. On the other hand, incentives for new free trade agreements (FTAs) between the USA and other countries, to say nothing of regulatory impulses for global trade, are unlikely to be part of economic policy under Trump. Subsidies currently on offer under the Inflation Reduction Act (IRA) are intended to help US businesses master the green transition. Whether or not they will continue to be offered under Trump remains unclear. Businesses may profit from general tax breaks, but climate and energy policies will likely once again focus on conventional energy sources.
If Harris wins: subsidies to strengthen the US economy and improve competitiveness
A Harris presidency would likewise aim to better ‘protect’ the US economy. Democrats, in fact, also view the country’s economic relationship with China very critically. Tariffs might play a role, albeit a smaller one, and Harris is also unlikely to endeavour to negotiate further FTAs. In contrast to a Trump presidency, a Harris presidency would likely have a more cooperative relationship with the EU, both in terms of bilateral relationships such as the Trade and Technology Council (TTC), and in terms of the treatment of third countries. US efforts pertaining to the green transition and decarbonisation will no doubt continue to receive support via corresponding subsidies.
Effects on Germany and Europe
Of course, this is just a small selection of potential outcomes. There are other important policy areas that could have significant effects, such as the next administration’s security policies, including sanctions and export and import controls for essential technologies. And of course, how the newly elected Congress will handle the national budget and the debt ceiling.
It seems fairly clear that, regardless of who wins the election, one trend will continue: the USA will continue to react to internal structural changes and the shifting global situation with increasing levels of protectionism, reducing their focus on multilateral regulatory systems. Depending on the election results, and the political situation as a whole, relationships with the EU will be more or less cooperative, and therefore more or less predictable.
However, a few things are unlikely to change: the European and American economic areas will remain closely interconnected. The USA is highly innovative, and indeed a world leader in many industries, such as digital products, security and financial markets. However, they still need the European market. Restrictions on transatlantic trade and investments would therefore impose a serious burden on prosperity and progress – not just in the EU, but also in the USA. Cooperation on both sides of the ocean therefore remains just as important as ever.
The US market remains very attractive to businesses in both Germany and the EU, as a place to export goods and invest in. Plus, it offers options for diversification. Of course, the impact of the election will vary depending on the industry, and even the individual case. From the point of view of the banks, it is essential that the existing transatlantic financial market remain both interconnected and predictable.
Regardless of the results, Europe must act
Europe’s competitiveness on the global stage is essential for the success of German and European businesses, and the economy overall. Innovation and a willingness to take risks will not suffice – economic policy must also create the right framework conditions. These will be set, first and foremost, by German and European legislators. The most important factors include:
- Successful energy and commodities policies as a means of ensuring stable, competitive access to both energy and raw materials.
- Ambitious free-trade policies as a means of securing existing sales markets and opening new ones.
- Pragmatic climate policies focused both on effective decarbonisation and on the competitiveness of businesses operating out of the EU.
- Balanced regulations for banks and the financial markets that take into account developments in the USA while ensuring that the EU is home to powerful, globally competitive institutions, infrastructure and markets.
- Resolute strengthening and deepening of the single market, including the capital market, focusing on competitiveness.
In order to create excellent framework conditions for the European economy, especially in light of global upheaval and stark competition, the EU must take a unified, more strategic approach. Here, it will be essential to suggest constructive approaches to geopolitical challenges. Germany and the EU must offer credible solutions in order to continue to foster cooperation across the Atlantic.
