Economics

The beginning of the end of the Trump era

Published

1 month ago

January 19, 2025

THE MOST jarring difference between Donald Trump’s first and second inaugurations will be the setting. Eight years ago he spoke in front of the Capitol building on a relatively mild January day, but frigid temperatures have pushed the ceremony inside for the first time in 40 years. A closer look at plans for this scaled-back event also offers hints at some of the profound contrasts between 2017 and 2025.

Mr Trump’s vice-president will be sworn in first. Last time he had at his side the steady hand of Mike Pence, a living embodiment of the orthodoxies of Reagan Republicanism. Mr Pence had spent more than a decade in the House of Representatives before serving as governor of Indiana for four years. He knew the ways of Washington and was friendly with all of the party’s core constituencies: free marketeers, social conservatives and foreign-policy hawks. His choice was a sign of humility from Mr Trump meant to reassure his party after a hostile takeover.

His choice this time around sent the opposite message. J.D. Vance, 40-years-old, has half as much experience as Mr Trump as an elected official in Washington. He spent his brief time in the Senate challenging the foundations of Republican thought on international relations and economics. His elevation is a sign that Mr Trump is self-assured enough to not need a guide so much as an attack dog and loyal servant—something he believes Mr Pence was not in the aftermath of the 2020 election.

Others who will be present—or at least those invited before the guest list was radically reduced—are evidence of the great paradox of Mr Trump’s second term. While he is less constrained, he takes office with much of America and the world seemingly less anxious about him in power.

Mr Trump was something of an international oddity in 2016. Some, like the prime minister of Japan, swiftly adapted to the new reality and visited Mr Trump in New York. This time Mr Trump has a broader international fan base. Javier Milei, the president of Argentina, plans to attend, along with Italy’s prime minister, Giorgia Meloni. The Chinese Communist Party will send the country’s vice-president, and India’s foreign minister will be there as well. Mr Trump had been conducting shadow foreign policy for weeks—with his advisers playing a role in the Gaza ceasefire—so it comes as no surprise to see such a broad guest list from abroad.

The American public’s reaction also has been starkly different. Rather than the palpable sense of dread apparent in January 2017, the streets are filled with tourists and there are parties taking place throughout the city. Organisers of an anti-Trump protest in Washington had hoped some 50,000 people might show up; around 5,000 did. Snoop Dogg, once a Trump critic, performed at the Crypto Ball (the president-elect, naturally, launched a new cryptocurrency the same day, called $TRUMP). The below-freezing temperatures should help to maintain this collective shrug from Mr Trump’s detractors. While the streets will probably be quiet, the rotunda, where Mr Trump will be sworn in, will be packed tight with America’s elite.

Mr Trump is at the peak of his power, before he has had to do anything unpopular, or disappoint any of the factions competing for his attention. Mark Zuckerberg, Jeff Bezos and Elon Musk—all open Trump critics during the first term—have struck friendlier notes and are set to attend the inauguration. Even Bill Gates recently said he was “impressed” with the new president. Towards the end of the campaign, Forbes estimated that Kamala Harris had support from 83 billionaires to Mr Trump’s 52. Since winning, many business titans have been more open. “Everybody wants to be my friend,” Mr Trump observed in December. No doubt he is aware that much of this is self-interest as his administration is set to write new regulations and retire old ones, all of which could directly affect profit margins.

Also in attendance will be Mike Johnson, the House speaker, and John Thune, the Senate majority leader. For all his rage against the deep state and his own advisers who he believed undermined him last time around, Mr Trump also had his fair share of scuffles with Congress. More deftly handling the politicians on the other end of Pennsylvania Avenue will be as important for the Trump agenda as his war against the entrenched bureaucracy.

Here Mr Trump has made more effort in the run up to his second term. He personally intervened to ensure Mr Johnson remained speaker, and he has hosted various factions of Congress at Mar-a-Lago to talk strategy. Mr Trump is always unpredictable, but co-ordination has improved. For example, some executive actions may be delayed so that revenue savings can be passed by Congress and counted against revenue losses from tax-cut extensions. This may be the fate of Joe Biden’s ill-conceived executive order on student-loan bailouts.That does not mean the beginning of the new presidency will be quiet: expect a flurry of executive orders on immigration and trade right away.

Yet Mr Biden also issued plenty of executive orders on day one. Looking at them now–the reversal of the Muslim ban, the Covid-19 eviction moratorium, the whole-of-government initiative on racial equity–is like finding a time capsule buried in 2020. It is also a reminder that lasting change cannot be made by presidential fiat. To endure, policies need backing from Congress.

And while the Republican Party is very much outwardly MAGA—and agrees on cutting taxes, restricting immigration and bolstering energy production—many pre-Trump orthodoxies prevail. As he works with Congress, Mr Trump may find himself giving way to policies that don’t seem particularly revolutionary. “The striking thing about Republicans in Congress now is that they’re pretty recognisable” when compared to their Obama-era predecessors, argues Yuval Levin, a senior fellow at the American Enterprise Institute, a think-tank, and alumnus of George W. Bush’s administration. “They haven’t changed as much as you would think, given how different Trump is from where Republicans have been before.”

The Senate will also play its traditional role of slowing down an ambitious president’s goals; it’s entirely possible that only Marco Rubio, nominee for secretary of state, will be approved on the first day of the Trump administration. Matt Gaetz, the controversial pick for attorney general, already saw his nomination collapse. Others could too, depending how they fare in their hearings.

Mr Trump will move rapidly; the question is whether his policy changes stick. The beginning of the end of the Trump era will kick off with large-scale deportations on Tuesday, once the inauguration festivities have come to a close. Once the initial shock and awe have worn off, it will be on Mr Trump to fight tougher battles of persuasion to create a real legacy.■

Economics

Germany’s election will usher in new leadership — but might not change its economy

Published

1 day ago

February 21, 2025

Business Finance News

Production at the VW plant in Emden.

Sina Schuldt | Picture Alliance | Getty Images

The struggling German economy has been a major talking point among critics of Chancellor Olaf Scholz’ government during the latest election campaign — but analysts warn a new leadership might not turn these tides.

As voters prepare to head to the polls, it is now all but certain that Germany will soon have a new chancellor. The Christian Democratic Union’s Friedrich Merz is the firm favorite.

Merz has not shied away from blasting Scholz’s economic policies and from linking them to the lackluster state of Europe’s largest economy. He argues that a government under his leadership would give the economy the boost it needs.

Experts speaking to CNBC were less sure.

“There is a high risk that Germany will get a refurbished economic model after the elections, but not a brand new model that makes the competition jealous,” Carsten Brzeski, global head of macro at ING, told CNBC.

The CDU/CSU economic agenda

The CDU, which on a federal level ties up with regional sister party the Christian Social Union, is running on a “typical economic conservative program,” Brzeski said.

It includes income and corporate tax cuts, fewer subsidies and less bureaucracy, changes to social benefits, deregulation, support for innovation, start-ups and artificial intelligence and boosting investment among other policies, according to CDU/CSU campaigners.

“The weak parts of the positions are that the CDU/CSU is not very precise on how it wants to increase investments in infrastructure, digitalization and education. The intention is there, but the details are not,” Brzeski said, noting that the union appears to be aiming to revive Germany’s economic model without fully overhauling it.

“It is still a reform program which pretends that change can happen without pain,” he said.

Geraldine Dany-Knedlik, head of forecasting at research institute DIW Berlin, noted that the CDU is also looking to reach gross domestic product growth of around 2% again through its fiscal and economic program called “Agenda 2030.”

But reaching such levels of economic expansion in Germany “seems unrealistic,” not just temporarily, but also in the long run, she told CNBC.

Germany’s GDP declined in both 2023 and 2024. Recent quarterly growth readings have also been teetering on the verge of a technical recession, which has so far been narrowly avoided. The German economy shrank by 0.2% in the fourth quarter, compared with the previous three-month stretch, according to the latest reading.

Europe’s largest economy faces pressure in key industries like the auto sector, issues with infrastructure like the country’s rail network and a housebuilding crisis.

Dany-Knedlik also flagged the so-called debt brake, a long-standing fiscal rule that is enshrined in Germany’s constitution, which limits the size of the structural budget deficit and how much debt the government can take on.

Whether or not the clause should be overhauled has been a big part of the fiscal debate ahead of the election. While the CDU ideally does not want to change the debt brake, Merz has said that he may be open to some reform.

“To increase growth prospects substantially without increasing debt also seems rather unlikely,” DIW’s Dany-Knedlik said, adding that, if public investments were to rise within the limits of the debt brake, significant tax increases would be unavoidable.

“Taking into account that a 2 Percent growth target is to be reached within a 4 year legislation period, the Agenda 2030 in combination with conservatives attitude towards the debt break to me reads more of a wish list than a straight forward economic growth program,” she said.

Change in German government will deliver economic success, says CEO of German employers association

Franziska Palmas, senior Europe economist at Capital Economics, sees some benefits to the plans of the CDU-CSU union, saying they would likely “be positive” for the economy, but warning that the resulting boost would be small.

“Tax cuts would support consumer spending and private investment, but weak sentiment means consumers may save a significant share of their additional after-tax income and firms may be reluctant to invest,” she told CNBC.

Palmas nevertheless pointed out that not everyone would come away a winner from the new policies. Income tax cuts would benefit middle- and higher-income households more than those with a lower income, who would also be affected by potential reductions of social benefits.

Coalition talks ahead

Following the Sunday election, the CDU/CSU will almost certainly be left to find a coalition partner to form a majority government, with the Social Democratic Party or the Green party emerging as the likeliest candidates.

The parties will need to broker a coalition agreement outlining their joint goals, including on the economy — which could prove to be a difficult undertaking, Capital Economics’ Palmas said.

“The CDU and the SPD and Greens have significantly different economic policy positions,” she said, pointing to discrepancies over taxes and regulation. While the CDU/CSU want to reduce both items, the SPD and Greens seek to raise taxes and oppose deregulation in at least some areas, Palmas explained.

The group is nevertheless likely to hold the power in any potential negotiations as it will likely have their choice between partnering with the SPD or Greens.

“Accordingly, we suspect that the coalition agreement will include most of the CDU’s main economic proposals,” she said.