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US election iwd 8. November 2016

Two candidates, several question marks

While business in the United States is growing, the country’s economy has picked up only gradually since the 2009 worldwide economic crisis. The upcoming presidential election debate hasn’t improved matters, with neither Donald Trump nor Hillary Clinton being able to produce a convincing plan on how to help the US economy regain momentum.

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Tomorrow America will have elected its new president. Whether it will be the multi-billionaire Donald Trump or former First Lady and Secretary of State Hillary Clinton who will govern the world’s largest economy is still a matter of pure speculation. Current polls show Clinton holding a comfortable lead in the race, but the tide can turn at any point in this land of opportunity.

One thing, however, is already certain: whoever moves into the White House will have serious problems to face. These include the increasing tension on the domestic front, but also a weakening economy that has still been running in crisis mode and that isn’t able to achieve sustainable growth – much less return to its former strength.

After a relatively good start into the year 2015, the US economy’s pace of expansion slowed down considerably by the turn of the year – a trend that has continued in the first half of the year 2016.

During the second quarter of 2016, the real gross domestic product increased by a scant 1.3 per cent compared to the same quarter in the previous year; this was the lowest rate of economic growth recorded in the past three years. In the third quarter the economy rebounded somehow, but the overall growth for 2016 will remain subdued.

With private consumption making up about 70 per cent of the US economic output, the country’s population of active consumers continues to stimulate growth; yet this isn’t enough to remove uncertainties in the business sector and to create a favourable climate for investments. In particular in the lead-up to the presidential election, many companies have exercised restraint in regard to investments.

The US export economy also isn’t coming into full swing, with stagnating world trade and the strong dollar leaving hardly any margin for expansion. This increases the already substantial foreign trade deficit even further.

In the year 2015, the US current account deficit amounted to 2.6 per cent of the GDP.

The import surplus has long been a campaign issue. Republican Donald Trump’s solution: economic isolation and protectionism. If the businessman wins the election, he hopes to renegotiate existing trade agreements, such as the one with Mexico and Canada. In his view, this would resolve multiple problems at once. For one thing, one-sided tax burdens could be swept out of the way – like the value-added tax levied on US exports at the Mexican border. For another, such negotiations would address the job crisis, since Trump asserts that free-trade agreements have caused jobs to migrate from the United States to other countries.

However, neither phenomenon is a result of free-trade agreements. The fact that the United States has seen the loss of many jobs in recent decades – especially in the manufacturing sector – can be attributed to structural change. US businesses have focused more and more on services, with the manufacturing now contributing less than 12 per cent to the gross domestic product. By way of comparison, the share is nearly twice as high in Germany, at around 22 per cent.

The transition on the US employment market largely took place between the mid-1950s and the mid-1990s – while the North American Free Trade Agreement (NAFTA) between Mexico, the United States and Canada did not enter into force until 1994.

The tax problem also would not be resolved by cancelling a free-trade agreement. It results from the fact that Mexico raises a value-added tax while this type of taxation is not available at the federal level in the United States. Therefore it is a matter of fiscal policy and taxation and not of international trade policy.

The Republican candidate’s plan not only raises questions in regard to trade policy; what is also unclear, for example, is how Trump intends to finance the tax breaks of approximately 10 billion dollars – a prospect he has presented for the American economy. The budget balance has been negative for decades, and the public debt exceeds America’s entire annual economic output.

If the vote goes to Hillary Clinton, making her the first female President of the United States, it can be assumed that she will adopt a somewhat different course. While Clinton has also recently entered the debate surrounding anti-globalisation, she – in contrast to Trump – will most likely continue negotiations with the EU about TTIP. It can also be expected that she will take the last necessary steps towards implementing the Trans-Pacific Partnership (TPP) with eleven trade partners from the Pacific Rim.

The Democratic candidate also promises new jobs – but without explaining how these will be created. Like Trump, Clinton lacks a plan for how to restore America’s innovative strength.

Clinton or Trump? The answer is also relevant for the German economy, since the winner will influence how the export business develops between the two countries. Even if Germany’s exported goods to the USA rose by nearly one-fifth in the year 2015, this trend is by no means guaranteed.

In the first seven months of this year, German exports to the USA were around 6 per cent lower than the same period in the previous year.

Both presidential candidates have generated uncertainty with their half-baked ideas concerning US economic policy – an uncertainty that has clearly been felt by many German and other European businesses for some time now.

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