The outcome of November’s US presidential election will have profound consequences for democracies worldwide and for geo-political flashpoints like Ukraine, the Middle East and Taiwan.
But the potential economic fallout could be equally far-reaching. In today’s interconnected global economy, with supply chains stretching across continents, policy missteps in the United States could reverberate around the world, fuelling trade wars, inflation and unemployment.
Election campaigns are rarely conducive to sound policymaking, as candidates often make ambitious promises without considering their feasibility.
This is especially true of the 2024 US election, with studies suggesting that both Democratic and Republican policies are likely to increase the deficit over the next decade.
The focus on short-term fixes and immediate relief could have a significant impact on America’s long-term fiscal health.
According to the Penn Wharton Budget Model, Vice-President Kamala Harris’s economic policies could raise the federal deficit by $1.2 trillion by 2034.
While alarming, this figure pales in comparison with the potential impact of former president Donald Trump’s proposed policies, which are expected to increase the US deficit by $5.8 trillion over the same period.
Harris and President Joe Biden have been heavily criticized for presiding over America’s highest inflation in 40 years. But inflation has fallen dramatically since peaking in June 2022, prompting the Federal Reserve to cut its policy interest rate by 50 basis points last fortnight.
Despite this, Trump continues to attack the Biden administration over price increases, promising to tame inflation by, for example, expanding domestic oil drilling.
While macroeconomic experts are not always right when it comes to potential policy outcomes, there are times when their concerns are well-founded. Trump’s economic proposals are a case in point.
Consider Trump’s proposed tariffs. If elected, he plans to impose a 10% tariff on all imports to the US and a 60% tariff on Chinese goods. He also aims to curb outsourcing to foreign producers, promising to “build American, buy American, and hire American” and threatening to “punish those who ship jobs and factories overseas or to places like Mexico.”
Although targeted tariffs can sometimes make economic sense, applying them across the board would inevitably drive up costs and create inefficiencies.
Discouraging outsourcing may appear beneficial, but blocking US companies from accessing cheap labour abroad would make American products less competitive globally, harming the US economy and reducing demand for labour in the long run.
The current debate on outsourcing is often framed as a battle between workers in wealthy countries and those in developing economies. But this overlooks the fact that outsourcing is fundamentally a labour-versus-capital issue.
Every time a job is moved overseas, profits increase, benefiting owners while workers bear the costs. The solution is to tax capital and redirect some of the revenue to workers without sacrificing competitiveness. Yet, Trump, who has pledged to cut corporate taxes, has embraced the opposite approach.
Argentina’s experience should serve as a cautionary tale about the threat that Trump’s policies pose to America’s economic prospects.
In the early 20th century, Argentina experienced remarkable growth, with some even predicting that it would eventually surpass the US economically. But in 1930, José Félix Uriburu launched a military coup and declared himself president.
Backed by the far-right Nacionalistas, he restricted immigration and nearly doubled tariffs by 1933. Consequently, Argentina’s economy stagnated, and eventually its hopes of rivalling the US were dashed.
To be sure, macroeconomic policymaking is inherently fraught with error and uncertainty. This is why simple correlations, such as pointing out that economic indicator Y worsened under President X, are misleading and largely irrelevant.
Political leaders are not expected to know everything; they are expected to have empathy for ordinary people and base their decisions on sound reasoning and the best available scientific knowledge.
Trump appears to fall far short of this ideal. A lack of empathy is evident in his dehumanizing rhetoric, especially his claims that migrants are “poisoning the blood” of the country.
Throughout his career, Trump has consistently shown disdain towards the disadvantaged.
At a time of rising geopolitical tensions and economic turmoil, the United States needs a president who may not have all the answers to the world’s problems but genuinely cares about ordinary people and approaches policy challenges with empathy, integrity and humility. Only one candidate for the US White House fits the bill. ©2024/project syndicate
