US elections will have global economic consequences

In November, American voters will decide who will take control of the White House, the Senate and the House of Representatives. Kamala Harris, Donald Trump and their political parties differ significantly on key economic policy proposals that will have a strong impact on the economy. of the country and therefore the world. Here we examine examples in the fields of trade, taxes, energy and immigration.

On trade, while the Democratic administration of President Joe Biden has not been a bastion of free trade (it maintained Trump’s tariffs on Chinese imports and recently selectively raised tariffs on some Chinese goods), a second Trump administration would likely be far more protectionist than a Harris administration.

Among other measures, Trump has already mentioned two possible policies: a 60% tariff on all Chinese imports and a universal 10% tariff on all imports. While the Biden administration has sought a “risk reduction” of exposure As for the Chinese economy – citing national security reasons – through protectionist policies, blocking access to technology and subsidies for local production in semiconductors and clean energy, it can be said that Trump's announcements point to a complete 'decoupling' between both economies.

As with all mercantilist policies, based on the belief that the adversary loses and local production wins, the negative impacts on all sides, including third countries, are always underestimated. Trump's tariffs on imports from China have reduced American manufacturing jobs, as has been shown by economists at the Federal Reserve Bank In 2019, American agricultural producers lost market share in China to Brazil. For those who believe that third countries can benefit as “connectors” between the United States and China,as Mexico, Vietnam, Malaysia and others have done since that trade war—It should be noted that the decoupling pursued by the US administration would not leave these connections intact.

Trump has compared trade wars to boxing matches. A rise in the cost of living for American citizens as a result of tariffs would be part of the impact. Harris has correctly characterized Trump’s tariff proposal as a tax on American consumers, suggesting it is less likely to go beyond selective protection.

On the tax front, while the corporate income tax cuts passed by Congress in 2017 were permanent, the cuts to personal income and estate taxes are set to expire at the end of 2025. Trump wants to make them permanent for everyone. Harris wants to raise taxes on those making more than $400,000 a year. Harris’s campaign has backed several of Biden’s proposals to tax the wealthy.

On tax matters, the bipartisan composition of Congress after the election will be crucial, as it will ultimately determine the success of the tax plans of whoever is president. Both candidates promise to pay for their tax-benefit proposals with some form of tax increases: on corporations and the wealthy by Harris, and on imports by Trump. No one believes it will be possible to rebalance lost tax revenues through import tariffs! The tax question is becoming more pressing as tax developments and interest rate costs begin to matter more in the US (Figure 1).

Figure 1

On energy, there are also significant differences between Trump and Harris, with implications for the battle between fossil fuels and renewables. Regardless of the election result, US electricity demand will rise due, among other reasons, to the voracious energy needs of data centers, driven by artificial intelligence.

Republicans, led by Trump, are focusing on fossil fuels, promising to “drill and drill,” while Democrats are promising to expand solar, wind, and geothermal energy projects. The election will therefore have implications for the energy transition in the United States and, by extension, for the world. Figure 2 shows the recent evolution of the U.S. energy mix and what is at stake.

Figure 2

Not surprisingly, industrial metal prices are shifting in response to election probabilities, as measured by polls of voting intentions. Metal prices are sensitive to the election outcome, as meeting rising energy demand with solar and wind power will put more pressure on the grid (whose response will be copper- and aluminum-intensive) than if demand is met with fossil fuels.

The outcome of the election is also expected to have a significant impact on US immigration policy. Harris and Trump 2.0 are aiming for very different immigration policies.

Trump proposes measures such as ending birthright citizenship for people born in the United States whose parents are in the country illegally. He has also alluded to the forced deportation of illegal immigrants, something that legal experts consider difficult to implement. If Trump wins, immigration is expected to decline, as occurred during his first term in 2016-2020 (Figure 3).

Figure 3

Harris, for her part, has backed policies such as finding pathways for unlawful immigrants, especially children, to obtain citizenship. Both Harris and Trump have announced their intention to restrict illegal immigration, but Trump is likely to do so more aggressively.

It is worth highlighting the role that immigration has played in the American labor market. Without the recent return of immigration, the United States would not have shown extraordinary performance compared to its advanced peers over the past two years. Increased labor supply and demand for goods and services by immigrants drove GDP growth, according to a report by the Federal Reserve Bank of Dallas. Figure 4, taken from this report, shows the recent increase in the foreign-born U.S. population.

Figure 4

For the rest of the world, the differences between Trump and Harris’ trade and energy policies also imply significant differences in their impact. So it is no surprise that the rest of the world is closely watching the evolution of the American electoral process. If you believe that ongoing global warming is due to carbon emissions and want a transition to renewable energy worldwide, and if you believe that trade between countries is not a zero-sum game, you already know who you will support.

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Otaviano Canuto, based in Washington, DC, is a former Vice President and Executive Director of the World Bank, former Executive Director of the International Monetary Fund, and former Vice President of the Inter-American Development Bank. He is also a former Deputy Minister of International Affairs at the Brazilian Ministry of Finance and a former Professor of Economics at the University of São Paulo and the University of Campinas, Brazil. Currently, he is a Senior Fellow at the Center for New South Policy, Professor of International Affairs at the Elliott School of International Affairs – George Washington University, a non-resident senior member in Brookings Institution, to Affiliated Professor at UM6P and Director at Center for Macroeconomics and Development.