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The White House unveils a pair of bad policies to woo voters

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It is a Washington truism that little gets done in Congress during an election year. This means that pandering politicians, and particularly the president, need to get creative. Consider two recent moves by President Joe Biden to shore up support among blocs traditionally supportive of the Democratic Party.

On April 17th Mr Biden called for a 25% tariff on certain Chinese steel and aluminium products; in some cases that amounts to more than tripling existing import taxes. This is in addition to tariffs put in place by Donald Trump on some products. Mr Biden also told a steelworkers’ union that his administration will investigate Chinese shipbuilding subsidies and work with Mexico to block Chinese tariff evasion.

The day before the tariff announcement, the Department of Education proposed a regulation that would forgive unpaid interest for Americans who owe more on their student loans than they originally borrowed. Around 25m voters could benefit. The plan would also help more than 2m borrowers who have held loans for at least 20 years and an additional 2m who qualified for existing assistance programmes but didn’t sign up. Those who attended “low-financial-value programmes or institutions” could get relief as well.

The rule faces a month-long public-comment period, then a review. The administration hopes to implement the new proposal by the autumn. All this follows an announcement on April 12th of another student-loan cancellation for 277,000 borrowers that adds up to $7.4bn. The Education Department is working on yet another proposal to help those “experiencing hardship” repaying their loans.

These moves are the latest in a long White House campaign to relieve hundreds of billions of dollars in student debt. The White House estimates that it already has approved $153bn (or 0.6% of GDP) for more than 4m borrowers. The Committee for a Responsible Federal Budget (CRFB) believes the new policies cost $147bn. The hardship cancellation could range between $100bn and $600bn, depending how stringent the final proposal is.

This is probably good politics for Mr Biden, as the Democratic Party continues to consolidate support among college-educated voters and worries about losing rank-and-file union members seduced by Mr Trump’s overtures towards them. As policies, they are retrograde bungs to favoured groups at the expense of other Americans.

The steel and aluminium tariffs are inflationary, which makes them worse for low-income Americans. As for student-loan forgiveness, helping borrowers at high default risk could be progressive. But many borrowers in relatively good financial health carry debt because they choose to cover only their minimum monthly payments. Some voters might wonder whether law-school graduates really need more federal help than plumbers.

Congress has given the presidency broad but not unlimited authority to enact tariffs; Mr Biden’s student-loan actions are more dubious. The Supreme Court struck down a previous proposal, which relied on an overly expansive reading of a law that allowed for debt forgiveness during national emergencies. “This one is a lot more targeted, but if you pick enough targets, you get to a similar place,” Marc Goldwein of the CRFB says of the new proposal.

Both parties see value in having a debate about the cost, legality and fairness of Mr Biden’s student-loan efforts. While that goes on, the country is avoiding a more serious conversation about what has made college so expensive in the past few decades. And Mr Biden’s tariff play is only the latest sign that embracing protectionism is now a bipartisan habit.

Stay on top of American politics with The US in brief, our daily newsletter with fast analysis of the most important electoral stories, and Checks and Balance, a weekly note from our Lexington columnist that examines the state of American democracy and the issues that matter to voters.

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THE FIRST shot against America’s senior military leaders was fired within hours of Donald Trump’s inauguration on January 20th: General Mark Milley’s portrait was removed from the wall on the E-ring, where it had hung with paintings of other former chairmen of the joint chiefs of staff. A day later the commandant of the coast guard, Admiral Linda Fagan, was thrown overboard. On February 21st it was the most senior serving officer, General Charles “CQ” Brown, a former F-16 pilot, who was ejected from the Pentagon. At least he was spared a Trumpian farewell insult. “He is a fine gentleman and an outstanding leader,” Mr Trump declared.

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

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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.

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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.

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