US election – will the “America first” strategy pay off?

The midterm elections for the US Congress that take place in less than three weeks are deemed to be a mood test for Donald Trump’s policies. The decisive question is whether the Republican Party can keep a majority in both Houses or whether Trump will lose a large part of his clout. The Republican Party and the President are certainly aware that the presidential party usually loses seats in the midterm Congressional elections. Which of the party blocks is best able to mobilise its voters will play a great role in the outcome of the election.

According to an opinion poll, US consumers are better satisfied with the government’s economic policy than at any time in the past 15 years. The President can claim successes above all with one of his central election promises, namely strengthening US industry. A visible recovery in the industrial climate goes hand in hand with rising employment. One of Trump’s first measures to protect domestic industry was to withdraw from the NAFTA trade agreement with Canada and Mexico. A new agreement will be ratified in November under the name USMCA, from which the farming sector and the automobile industry should benefit.

With an eye to the presidential election in 2020 we estimate that Trump will do everything he can to maintain the pace of economic growth. The good economic climate at the moment and the splendid consumer climate are good prerequisites for this. If Trump holds on to his majority in Congress, a few more infrastructure projects will doubtless be launched in the near future at the expense of the public coffers. In addition, we firmly expect that time-limited tax breaks, which would otherwise come to an end immediately before the next presidential election, will be prolonged.

Whether or not tariffs continue to spiral upwards, especially as regards China, will play a major role not only for the US economy, but also for the global economy as a whole. This is hard to predict especially with such a fickle president. However, if tariffs do continue to spiral upwards this would very soon lead to rising costs for US consumers and companies so we do not expect that this will be the case. For this would stand in the way of the overriding goal to make America strong and great again and to generate robust economic growth. After significant US economic growth of around three per cent this year, we expect growth to slow only slightly next year.

The national debt will nevertheless continue to increase as fiscal policy is unlikely to change direction in the next few years. This will be the case almost regardless of what the majorities in Congress look like in the future. Hardly any politicians with solid budget discipline are left to raise a warning finger, previously they were mainly to be found among the ranks of the Republicans. Basically, Congress will probably stay on the compromise course that it has followed during the last few years in order to take account of the interests of the corresponding voter groups at the expense of the treasury.

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