Political events often matter for the economy before any policy is actually implemented. Firms make decisions under uncertainty: they plan investment, adjust production, negotiate prices, and decide whether to hire. These decisions depend not only on current conditions, but also on what firms expect the future to look like. A central question is therefore: how quickly do firms update their expectations when major political news arrives?
In a new research paper, Jonas Dovern and Klaus Wohlrabe study a particularly visible event: Donald Trump’s victory in the 2024 US presidential election. For German firms, the result was economically relevant because a second Trump administration was widely expected to bring a more protectionist US trade policy. Germany is a highly export-oriented economy, and the United States is one of its most important foreign markets. If firms expected new tariffs, weaker export demand, or broader disruption to international trade, this should show up quickly in their business outlook.
The authors use a simple but powerful idea. The ifo Business Survey was already in the field when the US election result became clear. Some German firms had answered the November 2024 survey before the election news arrived; others answered afterwards. Because the survey records the exact time of online responses, the authors can compare firms that responded just before and just after the election result became known. In such a „natural experiment“, this comparison can identify causal effects of the election result on outcome variables that have been recorded by the survey.
The main analysis focuses on 1,922 responses from manufacturing firms. The key outcome is whether firms expected their business situation in 2025 to be more favorable, about the same, or less favorable than in 2024. The election result is dated to 6:00 a.m. Central European Time on 6 November 2024, when prediction markets and major election forecasts indicated a Trump victory with very high probability.
The results are clear. After the election result became known, German manufacturing firms became significantly more pessimistic. The probability that a firm reported a less favorable business outlook for 2025 increased by about 12 percentage points. For exporters, the effect was even larger, at roughly 15 percentage points. By contrast, non-exporting firms did not show a comparable immediate deterioration in expectations.
The pattern becomes even sharper when the authors look at firms’ exposure to the US economy. Exporters or importers with US links reacted more strongly than firms without such links. Firms with strong US exposure showed particularly large revisions. This suggests that the response was not just a general mood effect. It was concentrated among the firms for which US policy was most economically relevant.
A second finding reinforces this interpretation. In September 2024, firms had been asked how likely they thought a Trump victory was. The negative effect of the election result was concentrated among firms that had assigned a low probability to Trump winning. In other words, firms mainly revised their expectations when the result was genuinely news to them. This is consistent with a rational updating story: firms changed their outlook when new information arrived that mattered for their business.
The paper also checks whether firms were simply becoming more negative about everything. That does not appear to be the case. Firms’ assessments of their current business situation remained broadly unchanged. This is important because the election could not plausibly have changed current business conditions in Germany within a few hours. What changed was the outlook for the future.
The likely channel is trade. Firms reduced their expectations for production and exports, while price expectations were largely unaffected. Business uncertainty also did not rise significantly in the immediate aftermath of the election result. The evidence therefore points less to a general uncertainty shock and more to concrete concerns about future demand, especially export demand.
The broader lesson is that foreign elections can have immediate economic effects abroad, even before new policies are enacted. Firms appear to monitor salient political events and translate them quickly into business expectations. For an export-dependent economy such as Germany, a change in US political leadership can therefore affect expectations, investment plans, and the perceived business outlook almost in real time.