Economic Implications of the U.S. Elections

The U.S. elections on Tuesday promise to have profound economic ramifications, influencing everything from American taxation to the country’s global trade relationships. Democrat Kamala Harris and Republican Donald Trump present distinctly different political agendas that will also impact labor market immigration flows and the composition of the energy sector.

Influence on Prices and Borrowing Costs

The contrasting positions of both candidates will impact the prices of everyday goods and the cost of borrowing. Households and businesses will feel these effects. The outcome will depend on who occupies the White House and which party controls Congress. This situation is particularly relevant for tax proposals that require legislative approval.

Tax Proposals from Trump and Harris

Trump has prioritized tax cuts in his campaign, promising to extend the tax cuts from his first term significantly. He aims to further reduce corporate taxes to stimulate economic growth and investment in businesses. Additionally, he proposes eliminating taxes on tips, overtime, and Social Security benefits for working Americans. Trump claims that the revenue loss from these cuts would be partly offset by new tariffs on imported goods.

On the other hand, Harris is committed to continuing the 2017 tax cuts for incomes below $400,000 for working families. She has indicated her intention to repeal tax cuts for wealthier Americans to promote economic equality. Harris plans to increase the corporate tax rate and implement a minimum tax specifically for billionaires in her proposal. Additionally, she aims to expand tax credits for families to provide more financial support to lower and middle-income households.

Legislative Action and Congressional Control

The imminent expiration of the 2017 tax cuts will likely require action on tax legislation next year. Both parties are reluctant to be seen as responsible for raising taxes on the middle class, meaning fiscal policy will be a dominant issue in the upcoming congressional session. The composition of Congress will be crucial for the final outcomes.

Tariffs and Trade

The most significant shock for businesses could stem from Trump’s proposal to drastically increase tariffs, aiming to force manufacturers to relocate production to the U.S. His plan suggests minimum tariffs ranging from 10% to 20% on all imports, which could escalate to 60% or more on goods from China.

Economic projections suggest that the most extreme tariff, 20% on all imports, could reduce U.S. GDP by 0.8% and increase inflation by 4.3% by 2028, assuming only retaliatory actions from China. If other countries also respond, the impact on growth could be more severe.

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Immigration Policies

Trump has promised to initiate the largest deportation of unauthorized immigrants in U.S. history, which would profoundly impact sectors such as construction and retail that rely on legal and undocumented workers. Economists warn that such action could destabilize the labor market and incur significant costs.

Harris’s approach is more moderate, promising to reintroduce legislation to curb illegal crossings at the border, a policy that would require bipartisan support in a divided Congress.

Energy and Environment

Trump has adopted the slogan “drill, baby, drill,” promising to reduce regulations on oil and natural gas production significantly. He aims to open more federal lands for fossil fuel extraction to boost domestic energy production. In contrast, Harris advocates for a transition to clean energy sources that protect the environment. She is committed to reducing household energy expenses while addressing the pressing climate crisis facing the nation.

Fiscal Projections and Market Volatility

Analysts predict that if either candidate implements their proposed plans, U.S. budget deficits will significantly increase in the coming years. Harris’s initiatives could raise the deficit by up to $3.95 trillion over a decade with expansive programs. In contrast, Trump’s proposed tax cuts and policies could elevate the deficit by up to $7.75 trillion, raising concerns among economists.

Despite these projections, investors seem optimistic about U.S. fiscal policy regardless of the election outcome. However, some analysts warn that an unsustainable fiscal path could trigger market volatility.

A divided government, where the opposing party controls at least one chamber of Congress, could limit deficits, as Congress must approve both spending and fiscal measures.