Economics
Where Donald Trump still looks vulnerable
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Donald trump loves to crow about his big crowds and smashing victories, even when he has to stretch the truth. His record-breaking performance in the Iowa Republican caucuses required no exaggeration. He enjoyed the largest margin of victory for any contested Republican caucus in the state’s history. Among Republicans he may be better understood as an incumbent president seeking re-election than as the insurgent outsider he performs at rallies. But Mr Trump’s dominance of the party faithful is no guarantee of success in November. What can the results of the earliest caucus reveal about his prospects for a general election still ten months away?
Those who endeavour to draw sweeping conclusions from quirky, low-turnout contests like the Iowa caucuses do so at their peril. Iowa (with its whiter-than-average population) and caucuses (which draw more engaged and older voters) tend not to reflect the American electorate. This year, only some 15% of registered Republicans in Iowa showed up to vote. Despite these caveats, the very first contest on the long road to election day can offer a glimpse into Mr Trump’s 2024 coalition. While the former president showed strength across all demographic segments, the results suggest he remains comparatively weaker among the college-educated and suburban voters who probably cost him the election in 2020.
In 2016 Mr Trump came in second in the Iowa caucuses, winning 37 of 99 counties. This year he won 98, losing only Johnson County, which is home to the University of Iowa, by one vote. Entrance polls, which survey voters before they enter their caucus site, indicate why. According to one such poll, AP VoteCast, 31% of college graduates said they would vote for Mr Trump, just barely edging out Ms Haley and Mr DeSantis, who polled at 30% each. Mr Trump’s divided primary opposition masked his weakness with this segment.
Entrance polls, like their better-known sibling the exit poll, are notoriously noisy and unreliable as samples of wider populations. But The Economist’s county-level analysis of Mr Trump’s vote share shows a similar pattern. Across the ten most educated counties in Iowa Mr Trump won 42% of the vote, compared with 66% across the ten least educated ones. And this analysis also points to a weakness among suburban voters. Mr Trump received an estimated 43% of the suburban vote in contrast to 60% of the rural vote.
Mr Trump lost in 2020 in part because of gains Democrats made among college-educated and suburban voters. According to data from Catalist, a political-data firm that helps Democrats, whereas college-educated white voters were split between Hillary Clinton and Mr Trump in 2016, in 2020 he lost those voters by nine points. His share of suburban white voters fell similarly. The Iowa caucuses suggest he may still have a problem with these groups. On January 15th Mr Trump failed to crack 40% of the vote in only four counties: Dallas, Johnson, Polk and Story, counties that are disproportionately educated and suburban (see map).
Mr Trump may overcome this vulnerability by attracting yet more non-college voters away from the Democrats. The political logic of his nativist populism is to do just that. And it seems likely that many voters like the suburban Iowans who caucused for Ms Haley or Mr DeSantis will make their way to Mr Trump’s camp come November. But despite broad support overall among Republicans, his narrower margins among some key parts of the electorate could also presage struggles in the general election. Mr Trump may be building a winning coalition for November, but its makeup is not stable. ■
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.
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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