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With the 2024 presidential election fast approaching, the economic policies of the two leading candidates, former President Donald Trump and Vice President Kamala Harris, are coming into focus.<\/p>\n
Vice President Harris has recently been criticized<\/a> for her promise to take on corporate \u201cprice gouging\u201d if elected, with some prominent economists<\/a> and Wall Street titans noting<\/a> that price controls, or similar policies, have rarely been effective historically.\u00a0<\/p>\n Former President Trump, meanwhile, has been under pressure<\/a> for his aggressive tariff proposals, with experts warning they could lead to a tit-for-tat trade war with China, exacerbate inflation, or even help spark a U.S. recession in a worst-case scenario.<\/p>\n In spite of this criticism, Trump has doubled down on his plan to implement a \u201cuniversal baseline tariff<\/a>\u201d on most imports if elected, as well as a tariff of 60% or more<\/a> on all Chinese imports.<\/p>\n \u201cWe are going to have 10% to 20% tariffs on foreign countries that have been ripping us off for years,\u201d the former president said at a rally<\/a> in North Carolina on Wednesday.<\/p>\n Trump, who has previously said \u201ctrade wars are good and easy to win<\/a>\u201d and called himself the \u201cTariff man<\/a>,\u201d has railed against the loss of U.S. manufacturing jobs due to the importation of cheap foreign goods, particularly from China, for years, often turning to tariffs as a solution. But while tariffs can have their place in economic policy to help protect nascent or defense-critical industries, experts say broad tariffs can be dangerous, mostly because they will force a response from affected nations.<\/p>\n Joachim Klement, an investment strategist at the UK-based investment bank Panmure Liberum, did the math on the potential impact of Trump\u2019s tariffs policies\u2014and the trade war he believes they\u2019d likely cause\u2014in a soon-to-be released report seen by Fortune<\/em>. He found that Trump\u2019s proposed blanket 10% tariff on foreign imports, and a 60% tariff on all Chinese imports, would lead to a 1.2 percentage point increase in inflation in the first year after its signing.<\/p>\n \u201cI would definitely worry about a significant inflation shock,\u201d he told Fortune<\/em> via phone Thursday. \u201cBasically assume that next year inflation in the U.S. is say, 2.5%, on average, with the trade war, it would go up to 3.7%.\u201d<\/p>\n Klement\u2014who publishes a Substack called \u201cKlement on Investing\u201d and is the author of \u201c7 Mistakes every Investor Makes\u201d and \u201cGeo-Economics: The Interplay between Geopolitics, Economics, and Investments\u201d\u2014said he doesn\u2019t expect a trade war to push the U.S. into recession next year. However, the impact on the U.S. economy will depend on the trade war\u2019s severity, and the Federal Reserve\u2019s response to the rising inflation that follows.<\/p>\n \u201cObviously the problem is, if you push inflation close to probably\u2014for individual months\u2014maybe even higher than 4%, that means the Fed has to react. It means the Fed might have to start hiking interest rates again,\u201d he explained. \u201cThat\u2019s when you get into trouble.\u201d<\/p>\n The U.S. has a long history of enacting broad tariff packages. The first major piece of legislation signed by George Washington after ratification of the Constitution was actually the Tariff Act of 1787, which imposed a 50 cent per ton fee on goods imported by foreign ships to help protect the U.S.\u2019s emergent manufacturing industry and raise government revenues.\u00a0<\/p>\n Today, both Trump and Harris are facing calls, as Washington once did, for tariffs to protect budding or defense-critical sectors of the economy, like semiconductors or electric-vehicle batteries. And both candidates have shown their willingness to use tariffs.<\/p>\n Trump famously sparked a trade war with China in 2018 with his decision to implement sweeping tariffs on that country, as well as Canada, Mexico, India, and other countries. Despite using less inflammatory rhetoric, the Biden administration has maintained Trump\u2019s tariffs on Chinese imports, and officials even enacted a new tariff<\/a> on EV batteries coming out of China earlier this year.<\/p>\n Nancy Qian, an economics professor at Northwestern University, told Fortune<\/em> this likely means whoever is elected, there will continue to be high tariffs on Chinese goods, and the size and scope of those tariffs will be the key difference between Trump and Harris.<\/p>\n \u201cI would expect the Harris administration to be more systematic and targeted. They\u2019ve been calling their strategy a high fence and small yard\u2014meaning that they want high tariffs only really want to protect a few sectors, like semiconductors, EVs,\u201d she said. \u201cWhereas Trump has been talking about just broad tariffs.\u201d<\/p>\n It\u2019s these overly broad tariffs that experts are concerned about, largely because they force a Chinese response. \u201cThe Chinese, whether they want to or not, they have to respond\u2014just because they can\u2019t lose face, they can\u2019t lose domestic standing,\u201d Qian explained.\u00a0<\/p>\n The professor warned the U.S. agricultural sector will likely be targeted by the Chinese in response to Trump\u2019s proposed tariffs, offering the dairy industry as an example. China received 13% of all U.S. dairy imports in 2023, according to the U.S. Department of Agriculture<\/a>. And the populous nation\u2019s appetite for milk and yogurt continues to swell<\/a>, making it an appealing market for American dairy producers.<\/p>\n \u201cThis is a core U.S. industry that could be really hard hit in a trade war,\u201d Qian warned, noting that China may attempt to target sectors like agriculture, which would hurt Trump politically if he enacts high tariffs.<\/p>\n It wouldn\u2019t just be the dairy industry under threat, of course. Klement explained that when countries impose broad tariffs, it\u2019s difficult for businesses to find new suppliers overnight. This creates a massive supply chain disruption, and disrupts exports substantially.<\/p>\n \u201cAnd that does two things: It creates an inflation shock, and it reduces GDP growth quite significantly,\u201d he said.\u00a0<\/p>\n In his study, Klement found the extreme version of Trump\u2019s tariff proposal, a 20% blanket tariff on foreign imports, plus a subsequent trade war, would reduce U.S. GDP by roughly 0.3% in the medium term, and world GDP by nearly 0.4% over the same period. When combined with rising inflation and interest rates, that could lead to problems.<\/p>\n \u201cIf you are already in a weak position, because the economy overall is not growing that strongly, it can push a country like the U.S. into recession,\u201d he noted.<\/p>\n<\/div>\nHow tariffs can help or hurt economies<\/h2>\n
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