Berlin/Washington. In the midterm elections in the USA, the Democrats won the majority in the House of Representatives and the Senate. What does the clear victory mean for the economy in the USA and Germany, for drivers and investors? And will Donald Trump's customs policy, which burdens companies in this country, now change? Will the US President become a “lame duck”? The initial reactions from experts are divided:
In the first two years of his term in office, Trump repeatedly hit trading partners with new tariffs, especially the EU and Germany. Economists do not expect any improvement after the crushing election defeat. With an uncomfortable majority at home, Trump could concentrate more on foreign policy, believes Thomas Gitzel, chief economist at VP Bank. The President will rely even more on regulations in the future. “Tariffs and trade conflicts could become more prominent again.”
The German Economic Institute (IW) sees it similarly. “German companies should expect that the direction of economic and customs policy will remain in place until at least January 2029,” the IW recently wrote with a view to the regular end of Trump’s term in office.
Customs policy will continue to slow down the German economy, says IW director Michael Hüther. “Trump is not imposing the tariffs by law, but by decree bypassing Congress.” Domestically, the USA is facing turbulent times. “Political uncertainty in Germany’s most important trading partner will weigh on transatlantic trade.”
Even after the election defeat, Trump's power is great. This allows him to veto laws. Even with the majority of Democrats in the Senate and House of Representatives, a Trump veto would have to be overruled by two-thirds of the voting representatives in both chambers - that is extremely difficult to achieve.
The Democrats tend to be more interested in international cooperation than Trump. But it would be a mistake to expect a fundamental return of the USA to free trade from a democratic majority, says ZEW President Achim Wambach. Isolation is not unique to the Trump administration. “There is broad cross-party consensus in Washington on trade policy towards China and on policies to protect domestic industry.”
The election defeat also reduces the Trump administration's ability to stimulate the US economy with economic stimulus programs, says Holger Schmieding, chief economist at Berenberg Bank. With slower investment growth in artificial intelligence and dampening effects of the crackdown on immigration, growth in the US economy will weaken significantly to around 1.5 percent in 2028. “The USA will therefore contribute less to global economic growth than before.” This would not leave the export-dependent German economy unscathed.
“Further deregulation or tax cuts, as the Republicans are calling for, are not to be expected, but neither is a change of course in economic policy towards higher taxes or social benefits,” said Clemens Fuest, President of the Munich Ifo Institute, to the “Frankfurter Allgemeine Zeitung”. “Unfortunately, Europe cannot count on any relief in trade with America.”
The increased cost of living for many Americans played a decisive role in the Republicans' defeat. Because of the Iran war instigated by Trump, fuel prices have risen sharply - to the annoyance of many voters in the USA, a driving country. Berenberg economist Schmieding expects increasing pressure on Trump from his own Republican Party to “bring gasoline prices back to a normal level by resolving the Iran issue.”
It is likely that after what could be the last round of bombing, the US government will conclude an agreement with Iran that will reopen the Strait of Hormuz. This means that oil prices, which have risen above $100 per barrel of Brent oil due to the Middle East war, are likely to fall - and with them gasoline prices for consumers on both sides of the Atlantic. Schmieding expects the price of Brent crude oil to fall to $75 per barrel by the end of 2027 and to an average of $65 in 2028.
There were initially slight losses on the financial markets, losses are expected for tech stocks. With decreasing scope for the Republicans in the budget, Landesbank LBBW expects a weaker dollar and falling yields on US government bonds. DIW President Marcel Fratzscher also expects that it will be more difficult for Trump to restructure institutions, as he tried to do with the Fed.
Investors should not overinterpret the initial stock market reaction, says economist Gitzel. “For the stock markets, historically it has not been that important who wins or loses how many seats.” In the past 75 years there has always been a plus in the 100 days after the midterms - “and a big one.” On average, the broad US stock market index S&P 500 rose by 10 percent. However, there is no clear pattern for stock market performance in years with a divided Congress or a Congress against the US President's party.
After the rapid success of the Democrats, the AI sector could be more heavily regulated. Tech companies have to prepare for even more headwinds with their huge data centers for AI. During the election campaign, more and more resistance emerged against the systems - especially because residents fear rising energy and water prices. Even Republican politicians imposed moratoriums on the construction of new data centers. With Democratic governors like Gina Hinojosa in Texas, corporations can prepare for a tougher course. “Data centers in space seem pretty appealing right now,” wrote tech billionaire Elon Musk after the election. He wants to build up computing capacity in orbit at his space company SpaceX - while it is still unclear whether that can work.
The Democrats’ election victory also means a changed situation for the crypto industry. In the relevant committees of the US Congress - such as the Senate Banking Committee - politicians who are traditionally much more skeptical about digital money than many Republicans are now likely to set the tone again. Industry observers therefore expect that parliamentary pushes for industry-friendly rules and initiatives such as the “CLARITY Act” will encounter significantly greater hurdles in the future.
Contrary to some fears, there was no slide in the price of crypto assets: Although the price of Bitcoin fell below $76,000 according to the first projections, it then climbed back towards the $78,000 mark. Other digital currencies such as Ether, Solana and Binance's own token BNB also recorded moderate price gains. The outcome of the election was no longer a surprise on the financial markets.
