As the 2024 presidential election approaches, the economic policies of the two main candidates, former President Donald Trump and Vice President Kamala Harris, have come into focus.
Vice President Harris was recently criticize Because of her promise to fight “price gouging” by corporations if elected, with some prominent figures Economists Wall Street Giants note Price controls, or similar policies, have rarely been effective historically.
Meanwhile, former President Trump has come under pressure over his aggressive tariff proposals, which experts have warned could lead to a tit-for-tat trade war with China, worsen inflation, or even help spark a U.S. recession in a worst-case scenario.
Despite these criticisms, Trump has strengthened his plan to implement theBasic comprehensive tariff“On most imports if elected, as well as tariffs 60% or more On all Chinese imports.
“We will impose tariffs of 10% to 20% on foreign countries that have been taking advantage of us for years,” the former president said in his speech. pool In North Carolina on Wednesday.
Trump, who earlier said,Trade wars are good and easy to win.And he called himselftariff man“Trump has for years railed against the loss of U.S. manufacturing jobs due to cheap foreign imports, especially from China, and has often resorted to tariffs as a solution. But while tariffs can have a place in economic policy to help protect emerging industries or critical defense industries, experts say broad tariffs could be dangerous, because they would force affected countries to respond.
Joachim Clement, investment strategist at UK-based investment bank Panmure Liberum, has calculated the potential impact of Trump’s tariff policies — and the trade war he believes they are likely to cause — in a forthcoming report seen by Reuters. luckHe found that Trump’s proposed tariffs of 10% on foreign imports and 60% on all Chinese imports would increase inflation by 1.2 percentage points in the first year after they were signed.
“I’m certainly concerned about a major inflationary shock,” he said. luck By phone on Thursday. “Basically, I assume that inflation in the United States next year will be 2.5% on average, and with the trade war, it will rise to 3.7%.”
Clement, who publishes a book on Substack called “Klement on Investing” and is the author of “7 Mistakes Every Investor Makes” and “Geoeconomics: The Interplay of Geopolitics, Economics, and Investing,” said he doesn’t expect the trade war to push the U.S. into a recession next year. However, the impact on the U.S. economy will depend on the severity of the trade war and the Federal Reserve’s response to rising inflation that follows.
“Obviously the problem is that if you get inflation close to 4%, it might be higher for certain months, and that means the Fed has to react. That means the Fed might have to start raising interest rates again,” he explained. “And that’s where you get into trouble.”
How Tariffs Can Help or Hurt Economies
The United States has a long history of enacting extensive tariff packages. The first major piece of legislation signed by George Washington after ratifying the Constitution was the Tariff Act of 1787, which imposed a 50-cent-per-ton duty on goods imported by foreign ships to help protect the nascent U.S. manufacturing industry and increase government revenue.
Today, both Trump and Harris are facing calls, as they once did in Washington, to impose tariffs to protect emerging or defense-critical sectors of the economy, such as semiconductors or electric-vehicle batteries. Both candidates have expressed a willingness to use tariffs.
It was Trump who sparked a trade war with China in 2018 by imposing sweeping tariffs on that country, as well as Canada, Mexico, India and others. Despite using less controversial rhetoric, the Biden administration has maintained Trump’s tariffs on Chinese imports, and officials have even enacted a law imposing tariffs on Chinese imports. New tariff Regarding electric car batteries that left China earlier this year.
Nancy Qian, an economics professor at Northwestern University, said: luck This likely means that, no matter who is elected, high tariffs on Chinese goods will continue, and the size and scope of those tariffs will be the main difference between Trump and Harris.
“I expect the Harris administration to be more methodical and targeted. They’ve called their strategy high fence, small yard — meaning they only want to impose high tariffs and really want to protect a few sectors, like semiconductors and electric vehicles,” she added. “Whereas Trump has been talking about just broad tariffs.”
It’s these overly broad tariffs that worry experts, largely because they force China to retaliate. “The Chinese, whether they want to or not, are forced to retaliate—just because they can’t lose face, they can’t lose their domestic standing,” Qian explained.
The professor warned that the US agricultural sector is likely to be targeted by the Chinese in retaliation for Trump’s proposed tariffs, and gave the dairy industry as an example. According to USDA data, China received 13% of total US dairy imports in 2023. US Department of AgricultureThe nation’s populous appetite for milk and yogurt continues to rise, making it an attractive market for American dairy producers.
“This is a key American industry that could be severely affected in a trade war,” Qian warned, noting that China could try to target sectors such as agriculture, which would hurt Trump politically if he imposed high tariffs.
The threat will not be limited to the dairy industry, of course. Clement explained that when countries impose broad tariffs, it becomes difficult for companies to find new suppliers overnight. This can lead to massive supply chain disruptions, significantly disrupting exports.
“This does two things: it creates an inflationary shock, and it reduces GDP growth significantly,” he added.
In his study, Clement finds that an extreme version of Trump’s tariff proposal, which would include a 20% tariff across the board on foreign imports, plus a subsequent trade war, would reduce US GDP by about 0.3% over the medium term, and global GDP by about 0.4% over the same period. When combined with higher inflation and interest rates, that could spell trouble.
“If you’re already in a weak position, because the economy overall is not growing strongly, that could push a country like the United States into recession,” he noted.
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