Eight years have passed so it is time that President Barack Obama leaves the White house in order to make place in the Oval Office for either Donald Trump or Hillary Clinton. The presidential elections in the United States of America are always a big happening. There is a lot of media attention and the whole world is watching the debates and the campaigns of the candidates. After all, being the president of the United States is a job unlike any other. As a president, you will receive a lot of economic, political and military power of one of the biggest and most influential countries in the world.
First of all, the background about the elections will be explained shortly. Second, the economic consequences of both presidential candidates will be described and last, a conclusion will be given.
The State-structure of the United States is kind of complex but with some explanation, it should be understandable.
First of all, you have governors. Governors are the most important leaders of each state and each state has one governor. And remember, the US contains 50 states. The work of governor can be compared with the work of the President but on a lower level. The governor is chosen directly from by the electorate of a state.
Next to the President, the Congress is the most important part of the government. It is the legislative authority. The Congress consists of two other parts, namely the Senate and the House of Representatives. The Senate consists of 100 persons, two from every state. The senators are re-elected every six years and many presidential candidates were senators or governors in the past. The House of Representatives consists of 435 members, who are re-elected every two years. Each state will choose a number of Representatives for the House of Representatives based on its population. Further, States are divided into districts and each district will deliver one representative. Also, the United States has two main political parties, namely the Republicans and the Democrats. Donald Trump belongs to the Republicans, whereas Hillary Clinton belongs to the Democrats.
Are you still following? Because there is more.
Lastly, there are electors who are part of the Electoral College. The size of the Electoral College is a summation of the amount of members of the Senate and the House of Representatives (so Congress) plus three members for Washington D.C. Thus the total amount of electors in the Electoral College will be 538. A strange thing about this is that way how electoral votes work. If a state votes 51% in favor of a candidate, all the electoral votes from that state go to that candidate. So, in a sense, 49% are not represented in the college. This can result in a bizarre situation where a candidate receives the majority of the votes nationwide but loses the elections.
Enough about the state structure of the United States, but we will need it to explain the economic consequences when Donald Trump or Hillary Clinton will become President of the United States of America. There are also more elections at the same time, next to the presidential one. Examples are the elections for the members of the Senate, some governors and some other local government institutions.
We will start with the economic consequences of Donald Trump becoming the President. As many of you know, Donald Trump is going to maintain a strict foreign policy, not only for the immigrants but also when it comes to the international trade. For instance, he is going to be more strict about the trade agreements with countries such as Mexico and China. This will lead to lower exports for the United States. He is also willing to reduce the amount of immigrants, for instance by building a wall on the Mexican border. This could reduce the labor force, which would reduce the production factor of the United States. On the other side, a lower workforce would enlarge the salaries of the existing workers, which can lead to higher expenses and therefore stimulate the economy. However, many argue that stricter immigration policy on the borders would not reduce the amount of immigrants but even increase it as many of them came to the United States legally by plane and stayed there after their visas expired. Additionally, many immigrants who would otherwise return to Mexico would now not do that, as they could not return to the United States with stricter border checks. Another plan of Trump is to lower the corporate income tax form 35% to 15%. As a result, the United States will be more attractive for international businesses and will lead to more work employment. Donald Trump will also increase public expenditure to invest in the army. His policies about the economy are quite the same as many former Republican candidates. According to some research by an impartial agency called Committee for a Responsible Federal Budget, the public debt will rise by 52 percentage points during his presidency. Last, the expectations are that the US dollar will depreciate when Trump becomes President.
Hillary Clinton has other plans when she becomes the President of the United States. Barack Obama also belongs to the Democratic Party so Hillary Clinton will continue the plans that are already on the table at this moment. Clinton will increase public expenditure to invest in healthcare, social security and infrastructure. To obtain the funds for these investments, she is going to raise the income tax for the wealthy. She is also willing to raise the minimum wages in the United States of America. The economic outcomes of Clinton becoming President are more specific. Businesses who are focused on the health care and infrastructure will suffer more when Clinton becomes President. According to some research by an impartial body called Committee for a Responsible Federal Budget, the public debt will rise with 12 percentage points with her as the Presdient. Also the expectations about the US Dollar are better when Hillary Clinton will become president.
Furthermore, the party division between the Congress and the President is also very important for the economic outcomes. The House of Representatives and the majority in the Senate at this moment are already Republican-controlled. There is a change that the Senate will be become Democratic when Hillary Clinton wins the presidential elections because the differences are not very big. On the other hand, in the House of Representatives, the differences are quite big in favor of the Republicans so it is not very likely that it will become Democratic. There are three most likely outcomes:
- A Democratic President, a Republic majority in the House of Representatives and a Democratic majority in the Senate:
This scenario is most likely to happen. Policy changes will be hard in this scenario but changes in the investments in defense and infrastructure are likely to happen because both parties, Republicans and Democrats, agree on this. However, these changes will not a have huge impact on the economy. It should be growing at a slow rate and inflation will rise to approximately 2%. The public debt will also rise but not very much.
- A Democratic President, a Republic majority in the House of Representatives and a Republican majority in the Senate:
This scenario is less likely to happen. Policy changes will be very hard in this scenario. Policy changes about migration, income tax and health care are not very likely to happen because the two parties will disagree. It could lead to political uncertainty. The economic growth will be lower but it is not possible to predict it.
- A Republican President, a Republic majority in the House of Representatives and a Republican majority in the Senate:
This scenario is not likely to happen. Many candidates who become presidents are more balanced in the beginning so Trump’s plan could be executed in a less extreme way, despite some of his proposals being rather radical. The economy of the United States could be more isolated and their international trade will decrease. It could also lead to social tension in the United States. The economic growth will be low and public debt will increase while inflation will not increase.
As a conclusion, we could say that the presidential elections will lead to a lot of uncertainty. For example, the financial markets in the US but also financial markets in other countries in Europe and Asia will be very volatile in the upcoming weeks. One of the causes can be that Trump is hinting about the fact that he will not accept the elections’ result. The best scenario will be that Clinton becomes president, especially with the combination of the Republican influence in the Congress. Research also confirms that this is the best combination for the economy of the United States and also for the financial markets and the US Dollar.
It now seems that Hillary Clinton will win the elections and continue the plans that Obama started but there always can be a surprise. For example, we saw earlier this year that electorates are very unpredictable when the British people voted to leave the European Union, contrary to the expectations.