2024 US election – what could the next President’s trade policy mean for the markets

With the US Presidential election just days away, you may be wondering what the possible implications could be on the global political dynamics and the wider financial markets. As a leading world-influence, how might the outcome of the elections affect the international financial landscape?

Probably more than ever before, American voters are being presented with two sharply contrasting candidates in former President Donald Trump and Vice President Kamala Harris. The policies of both White House hopefuls offer very different outcomes, which in turn, may potentially impact everyone.

To help you understand the potential economic effects of a Trump or Harris’s win, AFH’s Chief Economist Colin Warren explains what might happen over the next week. His five-day long series of blogs will consider the merits of each Presidential contender’s view on US taxation, immigration and regulatory policy.

Today, in the first blog in his insightful series, Colin will consider Trump’s and Harris’s trade policies.

Trump could impose protectionist tariffs on imports

While both candidates are likely to adopt a tough attitude towards China, Trump’s protectionist instincts are considerably more extreme than Harris’s. Earlier this year, Trump proposed an across-the-board worldwide tariff of up to 20% on US imports, and a 60% tariff on Chinese goods.

More recently, he has threatened to put a 100% tariff on countries that ‘leave the dollar’. This may refer to countries that conduct trade or hold reserves in currencies other than the US dollar, although it is not clear exactly what Trump means by this.

Kamala Harris is likely to keep the current import tariffs in place

The current Vice President’s approach is likely to be more targeted. Several tariffs implemented during the first Trump presidency (notably those on steel and aluminium) were maintained under President Biden, who also introduced new tariffs on specific Chinese exports including electric vehicles, semiconductors, and solar cells.

With this in mind, Harris is expected to keep these tariffs in place should she win in November.

An increase in tariffs may not bode well for the US economy

The motivation for imposing tariffs is to protect domestic manufacturers, safeguard US jobs, and reduce reliance on foreign imports. However, the sharp jump in tariffs proposed by Trump is likely to be “stagflationary” in nature, boosting prices for US consumers and hurting economic growth as trade partners impose retaliatory levies.

Compared with measures introduced during Trump’s first term in office, when tariffs were imposed on 15% of US imports with an average tariff rate of 13.8%, Trump’s current proposals are likely to be significantly more impactful.

Estimates from the Peterson Institute for International Economics suggest that a 20% across-the-board tariff combined with a 60% tariff on China could cost the typical middle-income household more than US$2,600 a year, even without consideration of the effects of potential retaliatory measures.

Bond yields and stocks could be affected too

Rising prices and higher wage demands might fuel inflation, which could put upward pressure on interest rates and bond yields. Regarding equities, Barclays estimates that Trump’s tariffs may reduce S&P500 companies’ profits by 3.2% in 2025, with earnings falling a further 1.5% if trading partners retaliate with similar levies.

It remains to be seen whether Trump would actually follow through on threats to raise tariffs, and his proposals could just be a negotiating tactic. However, under certain conditions, the President can impose tariffs without the approval of Congress.

This suggests that Trump’s tariff increases would have a better chance of being enacted than some of his conventional tax proposals.

Get in touch

If you would like to understand how the outcome of the US elections may affect your investments, or discuss your wider wealth more generally, AFH are happy to help.

As one of the UK’s largest independent financial advice companies, our experienced and knowledgeable experts will explain the best options for you in an understandable, jargon-free way, so that you can make more informed decisions. Either contact your existing AFH adviser or call us on 0333 010 0008 to arrange a consultation.

 

Tuesday 22 October 2024