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Last week, an article appeared on Holland Gold about the implications of a possible Donald Trump's second term. But, as we wrote in the article, the chances for the Democrats have increased significantly in the past month. So it's also quite possible that not Trump, but Kamala Harris will triumph in November. How will she shape policy when she takes her seat in the White House?
A second Trump term does not bode well for global trade. Exact measures are not yet known, but the former President has indicated that he wants to introduce 60 percent higher import duties for Chinese goods. Europe will not escape the dance either, because it is quite possible that there will be an import duty of ten percent on European goods. This means that European products will become more expensive for American customers. Europe can also impose tariffs on American products in retaliation, as happened in Trump's first term. At that time, the EU imposed tariffs on American products, such as jeans, whiskey and Harley-Davidson motorcycles.
The potential tariffs are bad news for trade. If Europe retaliates on the tariffs, it means that American products will also become more expensive for Europeans. However, many products imported from America cannot easily be sourced from other countries, such as raw materials for many medicines. Since companies can't always easily switch suppliers, higher import tariffs mean higher costs for both U.S. and European companies. A trade war usually has many losers.
Americans can also suffer indirectly from protectionist policies. For example, in his previous term, Trump protected the steel industry in America by introducing import tariffs. While they preserved jobs in the steel industry, these measures also had the effect of Negative effects. For example, the steel industry no longer has any incentive to innovate and markets more expensive steel than competitors in other countries. A car manufacturer that buys steel from US producers is therefore indirectly disadvantaged by protectionist measures in the steel industry, which may cost many more jobs.
It's about tensions in November between Trump and Harris (Source: Financial Times)
Kamala Harris is unlikely to start a trade war, but otherwise it is difficult to predict exactly what her policy will look like. Harris doesn't put much into words about concrete policy plans and keeps plans deliberately vague. For example, the current vice president has not given an interview since she became the Democratic presidential nominee. In 2020, she also ran for president, fighting for subsidized health care for all Americans, large climate funds, and decriminalization of illegal border crossings, among other things. Now, in 2024, she is following Biden's more moderate line on these points, but the explanation of this U-turn is lacking.
Harris thus avoids an in-depth discussion of the details. In particular, she opposes Project 2025, a very conservative document with plans for America's future. She does this on the basis of vague sentences about freedoms, such as the freedom to be safe from gun violence, or The freedom to vote. It is not known what these freedoms actually entail. So she wants to change a lot, but how she wants to achieve that remains shrouded in mystery. Harris also remains vague on other issues, such as the financing of the U.S. government and the ever-increasing debt, he wrote The Economist.
Americans' debt is mounting, but how it will remain sustainable is a question no one answers during the campaign. (Source: FRED)
By not going into these matters in a concrete way, Harris hopes to appeal to a large audience. On the day Biden withdrew as a candidate, the Democrats' chances had shrunk to a paltry 24 percent. But now eight The Economist the odds of a Harris win at 53 percent. It shows that voters are not yet sure of their choice. The hitherto vague message also gives Harris the flexibility to adjust positions as the campaign progresses. In this way, even more voters can be attracted. Instead of presenting her voters with detailed plans, she presents herself more as an alternative to sleepy joe and the vindictive Donald Trump.
The fact that Harris was vice president at a time when the purchasing power of citizens was under severe pressure works against her. It is not for nothing that a tax cut is one of her main points this campaign. That's why she even took up an election promise from the Republicans by promising that there would be No tax will be levied on gratuity. Both candidates made the pledge in Nevada, the state where 20 percent of workers work in hotels, restaurants or casinos (Las Vegas is in Nevada).
In addition, some of her plans are being questioned. For example, she wants to offer a helping hand to first-time buyers on the housing market with a tax benefit of 25,000 dollars. But critics argue that this measure only drives up the price, as it allows first-time buyers to bid more money on a house. Nor does it say how these measures are to be financed, while America's budget deficit is running at seven percent of GDP.
Last week we wrote that the state of the economy is a good advisor for the electoral success of the incumbent party. The timing of the election could be detrimental to Harris. Last week, figures on the labour market were published and showed that employment had to be adjusted downwards, economist wrote Han de Jong. Job growth over the twelve months up to and including March turned out to have been 1.3 percent instead of 1.9 percent. The inflation target of two percent is also in sight, as inflation has fallen back to 2.9 percent, from 3.5 percent in March.
Inflation is approaching the policy goal (Source: Statista)
Given that the FED, the US central bank, has a dual mandate and is supposed to contribute to employment in addition to price stability, a less robust labour market and falling inflation are likely to provide room for the FED's first rate cut. But since the effect of a rate cut is a year to a year and a half away, the rate cut could come too late to treat the Democrats to good economic data. The course of the elections will depend on economic developments, but also on the way in which Trump and Harris present themselves in the coming months. Either way, the elections promise to be very exciting.
(Photo by Gage Skidmore)
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On behalf of Holland Gold, Paul Buitink interviews various economists and experts in the macroeconomic field. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
