US Election: Economists Have High Hopes for the New President Biden

Hope for Improved International Cooperation under Biden

The work of the Trump administration (2017–2020) in the area of international cooperation is viewed by the majority as “very negative.” Trump’s administration does particularly badly in assessments of measures to combat climate change, trade policy, and general cooperation in international organizations. Its cooperation on migration issues and development aid is also viewed negatively by the participating economists. The Trump administration scores best in maintaining peace and security in the world: around one-tenth rate its work as “fairly positive,” while 3 percent even see it as “very positive.” However, the vast majority of economists (80 percent) assess its work as “fairly negative” or “very negative.”

The expectations for Biden’s first term in office are very different: the participating economists hope that the Biden administration will greatly improve cooperation in international organizations and take stronger measures to combat climate change. In each case, more than 60 percent expect “fairly positive” developments in these areas of international cooperation; around 20 percent even expect “very positive” developments. A clear majority also anticipates more peace and security in the world. The participating economists are more reserved when it comes to trade policy and cooperation on development aid and migration issues. Nevertheless, even in these areas, expectations are predominantly positive or neutral. There are hardly any negative expectations; those that were expressed concerned trade policy, at just under 10 percent. 

Trump’s Term in Office Had a Negative Effect on the German Economy

Trump’s first term in office had a negative effect on the development of the German economy. This opinion is held by 60 percent of the participating economists, who point to restrictive US trade policy and the great political uncertainty caused by Trump. The effect is assessed as very negative by 7 percent. Meanwhile, 12 percent believe that Trump’s term in office had a positive effect on the German economy, arguing that strong growth in the US economy under Trump also had a positive impact on the German economy. Almost one-fifth of the participating economists judge there to have been no effect; partly because the negative interventions that had been announced ended up being limited and partly as a result of positive and negative effects canceling each other out. 

Economists Disagree on the Development of Germany’s Trade Balance

In 2019, the balance of Germany’s trade with the US was about EUR 47.3 billion. Two-fifths of the economists surveyed assume that the trade balance will not change significantly under Biden, as this is affected much more by macroeconomic developments than by trade policy decisions. A good fifth believe the balance will rise, basing their opinion on an improvement in global trade relations and an increase in German exports to the US. Around 13 percent expect the balance to fall due to continued trade restrictions and reduced economic activity in the US. The comparatively high proportion of “don’t know” answers (26 percent) indicates a high degree of uncertainty among the participating economists.

No Change Expected in the Euro-Dollar Exchange Rate

Two-fifths of the economists surveyed do not expect any change in the euro-dollar exchange rate as a result of Biden’s election victory: they see central bank policy remaining largely unchanged, as the exchange rate has many drivers and possible effects have already been priced in. As many as 18 percent believe the dollar will appreciate slightly against the euro on the back of growing confidence in US politics and the economy. In contrast, 13 percent of the participating economists believe the dollar will depreciate against the euro due to an expected expansionary fiscal and monetary policy. The large number of “don’t know” answers (29 percent) again indicates a high level of uncertainty. 

Economists Do Not Anticipate a Reduction in the US National Debt Ratio

Only a good quarter of the participating economists expect President Biden to try to reduce the US national debt ratio. They argued that he could achieve this primarily through tax increases; they tend not to expect spending cuts. Around 64 percent do not expect Biden to attempt to reduce the national debt ratio. In the middle of the coronavirus pandemic and in light of the impending climate crisis, they see no financial scope for this. Moreover, pressure from voters and the left wing of the Democratic Party would prevent movements in this direction. In any case, they point out, the US can borrow cheaply and at will on the capital market and a reduction of the national debt is not one of Biden’s primary goals.