Economic risks of a Trump or Harris presidency: US presidential elections

Impact on the US economy

Both candidates’ policies contain inherent risks, including inflation. But one may pose a higher risk than the other.

Trump Presidency: High Risk of Inflation

Republican candidate Donald Trump’s key policies include raising tariffs on all imports, tightening immigration controls, including mass deportations, and cutting taxes.

Economist Neil Shearing warns that US consumer prices will rise sharply if Trump is elected. “The common thread running through all of these policies is that they will mean higher inflation.”

Trump has proposed universal base tariffs of 10-25% on all imported goods. Shearing criticizes Trump’s view that exporters would bear tariff costs, calling it a “misreading of Economics 101.” Shearing explains that tariffs act like taxes on U.S. consumers, driving up prices. “Higher tariffs mean higher inflation,” he reasoned, since those extra costs would be passed on to American buyers.

Trump argues that stricter immigration policies will protect American jobs by reducing competition from foreign workers. Shearing notes that limiting immigration or laying off undocumented workers would “reduce labor supply,” leading to higher wages and, in turn, consumer prices. This, he warns, could also contribute to inflation.

In terms of tax cuts, Trump has plans to cut rates for both companies and individuals. Shearing explains: “Cutting taxes is quite simple. If you cut taxes, you stimulate demand. If there is more demand in the economy for a given supply level, this also causes prices to rise. You get inflation.”

As for how high inflation could get, Shearing says: “A lot of it comes down to whether you take everything he said on the campaign trail at face value. And if you do that, I think the price level in the United States will go up.” quite significantly, potentially by 2 or 3 percentage points. So that’s a pretty big price increase over a two-year period.” However, he believes some policies will likely be eased, adding only about 1 percentage point to where the inflation rate would otherwise be.

Harris presidency: less influence, possible inflation risk

Democratic candidate Kamala Harris has proposed raising taxes on the wealthy and businesses, vowed to address the cost-of-living crisis that accompanies inflation and promised to make homeownership more affordable.

With Harris more or less expected to continue the Biden administration’s economic policies, Shearing expects less disruption to the economy. “A Harris presidency will mean business as usual.”

However, he sees the possibility of exceptions. “I think American corporations may face high tax rates, especially compared to the Trump presidency. This could be a bit of a headwind for the stock market.” Harris called for raising corporate taxes from 21% to 28%. Higher taxes usually have a negative impact on company profits.

And while Harris is focusing on tackling rising prices, Shearing believes her term could come with its own inflationary risk. “If the Democrats clean Congress quickly and cleanly, then I think we will get much looser fiscal policy under Harris. This could also lead to inflation.” Increased government spending tends to stimulate demand, which has the same effect as Trump’s proposed tax cuts: inflation.

Global implications

If we look at the global impact of the US presidential election, a key issue may be increasing tensions between Washington and Beijing. Both candidates are likely to take a tough stance on China, potentially changing global dynamics.

China will be a contender no matter who is in the White House

Regardless of the election results, friction between the world’s two largest economies may be inevitable. Shiring explains that hopes of China becoming a strategic partner have faded under Xi Jinping’s leadership. Instead, China has become a “competitor” to the United States in the economic, military, geopolitical and technological spheres. As a result, the two superpowers are on a “collision course” that “will not change no matter who takes the White House.”

Global rift will hit China and its affiliated countries

Shearing believes that “a rift between the US and China” is inevitable as both countries form blocs of united countries.

He adds that trade between the US and China blocs will be disrupted in critical geopolitical areas. Countries in these blocs will need to purchase necessary technologies and minerals domestically.

This task will be easier for the American bloc, which is “large and economically diverse.” Shearing believes that there are several groups in the US bloc: high-tech producers (Japan, Germany, Taiwan, etc.), emerging market producers (Mexico, Vietnam, etc.) and commodity producers (Canada, Australia, etc.) .d.).

On the contrary, he notes that the China bloc is dominated by China itself and otherwise consists mainly of commodity producers (Russia, Iran, Venezuela, etc.). China will face challenges due to its lack of diversity, which will require self-sufficiency in technology and critical minerals, which could “slow down the pace of its development.”

Technology is considered a strategically important area. Most modern semiconductors are made in Taiwan, and the lithography machines needed to produce them come from the Netherlands and Japan. Countries aligned with the US will likely retain access to these technologies, while China may face further restrictions.

Risk of fragmentation of the American bloc

However, Shearing warns that Trump’s victory could lead to a split in the American bloc. “If Trump is re-elected and begins to push back against his partners, the US will adopt a more isolationist agenda. broken world.”

Dynamics of US-China trade

If we look at the trade war between the US and China in more detail, the specifics of the policies are likely to differ.

Broad, transactional and bilateral agreements under Trump

The Republican candidate is taking a broad approach, proposing steep 60 percent tariffs on all Chinese imports.

Shearing notes that under a Trump presidency, the relationship will become “more transactional.” For example, Washington could threaten to impose tariffs of 60% on all Chinese exports entering the US if Beijing “does not do X, Y or Z.”

In addition, the relationship could become more bilateral, moving from a situation in which the US and China interact as part of larger networks to one in which the two countries find themselves more face-to-face. Shearing notes that technology export controls, a hallmark of Biden’s policy, cannot be implemented to the same extent because it requires persuading U.S. partners to accept similar restrictions. Such an alignment could prove “a little more difficult” if Trump is in power, complicating efforts to implement a cohesive policy against China.

Targeted at Harris, but uncertainty remains

Harris is expected to take a more targeted approach, targeting key industries such as semiconductors and electric vehicles. This would be a continuation of the Biden administration’s technology export controls, which focus on certain strategic sectors that serve to support his “invest in America agenda.”

Shearing says, “I believe she will pursue the same agenda as President Biden, and that will mean more emphasis on controlling technology and less emphasis on tariffs.”

However, uncertainty remains. “The main problem with Harris is that we don’t really know what her position will be on China,” Shearing adds. “We don’t have a lot of information to record, and not much to record.”

Macroeconomic trends predict widening trade imbalance between US and China

The IMF, in a September article, highlighted that China’s trade surplus is growing while the US trade deficit is widening, mainly due to domestic macroeconomic forces. Since the pandemic, demand in China has weakened due to repeated restrictions and a slowdown in the real estate market. The US, on the other hand, is seeing strong demand in the form of increased government and personal spending. These opposing trends have serious implications for the trade balance between the two countries.

Shearing sheds more light on this issue, explaining that as the world’s second-largest economy and largest exporter, China is struggling to find fast-growing markets for its goods. He notes that only the US can absorb the volume of exports produced by China.

He also explains the backstory. “The core of China’s economic problems is that it has a very high savings rate. Households in China save a lot of money.” Since the country cannot rely on domestic consumption, China must depend on “other sources of demand to generate growth.” Essentially it means “export”.

Shearing stresses that reducing the US trade deficit will be a priority under any administration, with measures likely to be more stringent if Trump is elected. However, he warns that unless China addresses its high domestic savings rate and increases consumption, there will be no significant reduction in its trade surplus.

High stakes in key elections

Will global trade be disrupted? And will rising prices in the world’s largest economy put inflationary pressure on other countries? The answer may depend on who becomes president.

Shearing ended the interview on a note of uncertainty, especially regarding the Republican candidate. “The scope of results under Trump is much wider than under Harris. Thus, the likelihood of extremes in the likelihood of outcomes under Trump is much greater. The outcome of this election potentially does matter.”