Trump - Harris' economic 'battlefield'

Compared to Harris, Trump's proposal is considered by economists to be more detrimental to the US, but could attract voters who fear inflation under Biden.

The US economy has received a lot of positive data recently. The US personal consumption expenditures (PCE) price index increased 2.1% in September compared to the same period last year. This is lower than August and closer to the 2% target set by the US Federal Reserve (Fed), strengthening the possibility that the agency will cut interest rates next week.

The U.S. Commerce Department said the world's largest economy grew 2.8% in the third quarter from a year earlier, a solid performance despite high interest rates and years of concern that pandemic-era stimulus is not enough to sustain growth.

The world's largest economy was driven largely by robust consumer spending, a performance economists say is impressive. The US has almost had a soft landing.

The economy is always the dominant issue in US presidential elections. With just a few days to go, polls show that the two candidates, Donald Trump and Kamala Harris, are still neck and neck.

So far, the two candidates’ economic approaches have been viewed very differently. While Ms. Harris favors small changes, Mr. Trump would almost completely reverse the policies of the current administration. In the next few days, American voters will have to decide which approach to support.

Inflationary

The former US President pledged that if re-elected, he would "quickly end the inflationary nightmare." One of the options he proposed was to deport large numbers of immigrants. He argued that tightening immigration would help reduce many costs, especially to solve the housing shortage.

However, analysts point out that if millions of illegal immigrant workers are deported, wages will skyrocket, causing prices to rise for consumers.

US inflation during Trump's (red) and Biden's (blue) terms. Chart: Reuters

Other pillars of Trump’s economic plan include tax cuts for businesses and the wealthy, no tax on commissions or subsidies for workers, and higher import tariffs on other countries. These policies are considered to have the potential to boost the economy. “However, this also means they can prolong inflation, by stimulating spending and increasing demand from people and businesses,” said Heng Koon How, an analyst at UOB.

"His plan would be more inflationary than any presidential candidate I've ever seen," Kimberly Clausing, a researcher at the Peterson Institute for International Economics, told CNN.

Meanwhile, Ms. Harris wants to support middle-class homebuyers, workers raising children and reduce taxes for small businesses. Accordingly, first-time homebuyers can receive $ 25,000 in down payment assistance. 3 million new homes are expected to be built in 4 years. Workers who have just given birth will receive a $ 6,000 tax reduction.

"When workers and the middle class have the opportunity to earn more money, start businesses, buy homes and improve their personal finances, the economy will be strengthened and grow," said Brian Nelson, an adviser to Ms. Harris.

The vice president’s plan still risks accelerating inflation. However, nearly 70% of economists in a Wall Street Journal survey said Trump’s policies would cause prices to rise faster than Harris’s proposals. Earlier this week, 23 Nobel Prize-winning economists signed a letter saying the Democratic candidate’s policies “outperform Donald Trump’s counterproductive plans.”

Import tax

Trump has proposed raising tariffs on all 3,000 products imported into the US each year to 10-20%, up from an average of 2% on non-agricultural products. He wants to impose tariffs of up to 60% on China alone. Cars from Mexico could even be taxed 200% to support the domestic auto industry.

Mr. Donald Trump at an event in Wisconsin on October 6. Photo: Reuters

Harris, on the other hand, did not propose changes to import tariffs. She implied that trade policy would remain the same under President Joe Biden. A full-blown trade war is therefore unlikely.

While Trump insisted that import tariffs would not raise prices, similar to inflation during his term, inflation in the US was stable at below 3%, despite Trump launching a trade war with China in 2018. Inflation spiked in 2020, when the pandemic disrupted global supply chains.

Many economists, however, are not convinced by this explanation, citing numerous studies showing that Americans have borne most of the costs of Trump’s tariffs on Chinese goods.

Clausing published a study earlier this year that found Trump’s proposed tariffs would cost the average American household more than $2,600 a year. That study did not include retaliatory tariffs that other countries could impose on American goods.

"The first rule of economic management is to do no harm. But Trump's proposed policies are creating a huge risk of pushing the US into recession," said Joe Brusuelas, chief economist at consulting firm RSM.

The tax, combined with immigration deportation policies and the desire to influence the Fed’s decisions, could drag down U.S. economic growth, trigger high inflation and reduce jobs, according to research from the Peterson Institute for International Economics. In some cases, the damage could last until 2040.

Domestic tax reduction

The two presidential candidates also have starkly different visions for taxes. Harris has called for only a partial extension of the tax cuts Trump passed in 2017. She has also pledged not to change the income tax rate for those earning less than $400,000 a year, while urging Congress to roll back the top tax cuts and raise the corporate tax rate from 21% to 28%.

Vice President Kamala Harris in Brookfield, Wisconsin, October 21. Photo: AP

Trump, on the other hand, wants to drastically adjust taxes. He proposed to extend all tax cuts from 2017 and wants to lower corporate income tax to 15% for some companies. Trump also plans to exempt a series of taxes on social assistance, overtime, etc.

Neither candidate has yet offered a clear plan for how to finance these campaign pledges, both of which would result in larger U.S. deficits over the next 10 years.

According to a study in early October by the Committee for a Responsible Federal Budget (CRFB), a non-profit organization, Vice President Kamala Harris' tax and spending plan could increase the country's budget deficit by $3.5 trillion over the next 10 years. This figure is $7.5 trillion compared to Donald Trump's plan.

Voters' Choice

Still, analysts say Trump’s message and proposals for drastic change are likely to resonate with voters frustrated with the current situation. In a recent NBC News poll, just 28% of Americans said they believe the country is headed in the right direction, down from more than 40% in 2021 when President Joe Biden took office.

Meanwhile, consumer confidence rose the most since March 2021 in October but remained well below where it was before the pandemic when Trump was in office. Inflation has cooled, but Americans are still paying more for everything from groceries to auto insurance than they did a few years ago.

"People don't look at price changes, they just know that the price of a carton of eggs is higher now than it was two years ago," Bernard Yaros, an economist at Oxford Economics, told CNN.

Putting aside issues like falling unemployment and rising stocks, things closer to home (including food, rent, utilities, and eating out) are more expensive than they were in 2019, due to factors like rising labor costs, lack of competition, and supply chain disruptions. These things directly affect Americans’ pocketbooks.

Trump and Harris have very different visions of what is best for the economy right now, and in some surveys of Americans, they still have a slight edge over Trump in terms of how he handles the economy.

Economists say they sense voters’ frustration, even though Trump’s economic plan may not be helpful to the country. They say the country doesn’t need the drastic reforms Trump wants. “The economy is doing well and doesn’t need such a big change,” Brusuelas concludes.