This election is hardly a paradox. While Donald Trump promised tax cuts for the richest, it was the working classes who overwhelmingly voted for the Republican candidate. Likewise, the most disadvantaged should be the big losers from Donald Trump’s aggressive trade policy, based on an increase in customs duties. An inflationary policy which will first affect the least well-off. For L’Express, Vincent Pons, professor at Harvard business school, deciphers the reasons behind Donald Trump’s victory, the denial of reality on the real economic situation of the United States… And the essential support of Elon Musk in the victory of the Republican candidate.
© / The Express
L’Express: Feelings of loss of purchasing power and downgrading were at the heart of Trump’s campaign, even though the situation of the American economy is rather flourishing. How can we explain the effects of this gap in the victory of the Republican candidate?
Vincent Pons: The economy was indeed at the heart of this campaign, largely ahead of the societal issues defended by Kamala Harris, such as abortion. When voters were asked what their main concern was, economic issues, and particularly inflation, came out on top, ahead of immigration or the future of American democracy. 45% of voters believe that their financial situation has deteriorated during the Biden years. And among them, 80% voted for Donald Trump.
Those who, on the contrary, felt that their situation was maintained or even improved voted 76% for Kamala Harris. These differences are considerable. In fact, American households say they are very dissatisfied with inflation and the level of interest rates. These two subjects are linked because if the Central Bank significantly increased its interest rates from 2021, it is because inflation had actually slipped. But if we look at the figures coldly, this story of inflationary slippage is almost ancient history. The rise in prices returned to the target set by the Fed, around 2% per year, and the Federal Reserve began to reduce its interest rates. Furthermore, growth is solid – more than in Europe – and unemployment remains very low, around 4%. But for the first time in an American election, the real economic situation did not matter. The feeling won out.
In terms of feelings, did the financial and media support of Elon Musk, owner of the social network X, play a role in the Trump vote?
It was decisive because this American campaign was the most expensive in history. And money is a key factor. Spending had already exploded in 2016, then in 2020, but this time new heights were reached. The regulatory context largely played a role. While the amounts paid directly to a candidate were capped, a Supreme Court ruling made unlimited the amounts paid by individuals or companies to Super PACs, “Political action committee”. These are the organizations that directly finance campaigns in favor of a candidate. These Super PACs can also raise money from other organizations and, in reality, it is extremely difficult to trace the money. Elon Musk gave $120 million to the “America PAC”, which financed pro-Trump television campaigns but also – and this is a first – field campaigns. This money allowed the hiring of 2,500 people who went door to door for weeks in all the swing states. It is estimated that 10 million voters would have been directly affected.
Donald Trump bases a large part of his economic program on an increase in customs duties. Isn’t this incompatible with his promise to reduce inflation?
This promise makes no sense since inflation has already fallen. It is very clear that if the new president carries out his threat of a general increase in customs duties, the impact will be very significant on inflation, which will be a factor in widening inequalities. Those who consume the largest share of their income are the poorest. The wealthiest, who have a higher savings capacity, will benefit from tax reductions. The increase in customs duties has the same unequal effect as the increase in VAT, even though Donald Trump was elected by massively winning the popular vote. Voters who earn less than $50,000 a year, and even less than $100,000, voted overwhelmingly for Donald Trump while Kamala Harris won the vote of the wealthiest. However, it is the poorest who will be mainly affected by Donald Trump’s economic policy.
Likewise, don’t his proposals to expel immigrant workers risk bringing down the economy and fueling inflationary tensions?
Of course. This is an element which adds to the inflationary effect of customs duties. The departure of a large proportion of immigrant workers will hit the service sector hard, where labor shortages are very severe. Companies will have no other choice to retain their employees than to significantly increase salaries, with the vicious circle that can set in motion on inflation and, ultimately, on the level of interest rates. This is totally counterproductive.
Donald Trump has promised a massive reduction in taxes, particularly corporate taxes, while the public deficit is already very high and the debt has reached stratospheric levels. Could American debt become a problem?
Yes, it’s a fairly mechanical risk as soon as you lower taxes without reducing spending proportionately. The public deficit will widen and so will the debt. American public debt already peaks at 125% of GDP, it could reach 136% within 10 years. Afterwards, its sustainability will depend on two factors: the level of growth and that of interest rates. On the second point, the accentuation of inflationary pressures will work in favor of higher interest rates, which will automatically have an effect on the debt burden.
What response should Europe have after the election of Donald Trump?
In the very short term, Europe will have to take its destiny back into its own hands, especially if the American president withdraws from NATO or reduces his military and financial support for Ukraine. In terms of trade policy, Europe will also have to make a decision. Donald Trump dynamited, during his first term, “the happy globalization” to which Europe clung. In fact, subsequently, the Democrats with Joe Biden did not return to this protectionist policy. Will Europe react this time or will it remain the leader of liberal economies that still believe in the benefits of trade? Everything has to be built.
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