2024 U.S. Elections: The Economic Impact under Harris vs Trump
The upcoming U.S. presidential elections on 5 November could mark a significant change in both the domestic and international economy, with current vice president Kamala Harris and Republican candidate Donald Trump offering wildly contrasting policy proposals. In a mid-October survey, we asked 17 of our expert analysts what their views are on the economy under Harris vs Trump. Here are their answers.
Key Economic Indicators at Stake in the 2024 Elections
GDP Growth
Around two thirds of our analysts expect the U.S.’ real GDP growth to average higher under Harris than under Republican rival Donald Trump. This is due to Trump’s proposal to hike tariffs on Chinese imports to 60%, impose a baseline tariff on other imports of 10–20%, and restrict immigration. The tariff hikes will increase costs for American firms and consumers, while the immigration crackdown will restrict labor supply. Both of these policies are therefore growth negative. Although Donald Trump is also proposing to extend the 2017 tax cuts that are due to expire next year, cut some taxes further and likely push for deregulation of certain sectors, the positive growth effect of these measures is unlikely to outweigh the negative impact of tariff hikes and lower immigration.
Meanwhile, Kamala Harris is proposing tax hikes on firms and the wealthy, a lower tax burden on the lower and middle class, and more social spending. In this regard, her economic policy wouldn’t mark a major departure from Joe Biden’s presidency.
Inflation and Interest Rates
82% of the panelists that we polled expect inflation to average higher under Donald Trump than under Kamala Harris. This will be due to Trump’s tariff hikes making imported goods more costly, his immigration restrictions hampering labor supply, and his tax cuts supporting domestic demand and heating up the economy. This should also lead the Federal Reserve to keep interest rates higher under a Trump administration than under Harris as the central bank tries to rein in price pressures.
That said, Donald Trump has in the past criticized high interest rates and accused the Fed of not doing enough to boost the economy. If elected, there is a chance that he could take this rhetoric a step further and try to reduce the Federal Reserve’s independence by appointing members to the governing board who are politically aligned with him. This scenario of a loss of Fed independence would likely result in interest rates being lower than under a Harris administration.
Trade and Global Relations
Most of the analysts that we polled expect Trump to go ahead and implement higher tariffs on imports from both China and the rest of the world. However, there is a good chance that the tariff hikes that eventually go into effect will exclude certain industries and be smaller than those that Trump has floated on the campaign trail, as a result of negotiations between the U.S. and foreign countries.
Under Harris, trade policy would be less abrasive, and we would likely not see large across-the-board tariff increases. That said, her government would continue President Biden’s attempts to boost domestic manufacturing and make supply chains more secure, while gradually ratcheting up trade and technology restrictions on China. As a result, while Harris would be less protectionist than Trump, she’d hardly champion unfettered free trade—an idea which has fallen out of favor in the U.S. in recent years.
Public Debt and Fiscal Deficit
The U.S. public debt is forecast to be 122% of GDP this year, while the federal fiscal deficit is projected to come in at over 6% of GDP, the largest in the G7. Neither candidate has put forward a serious plan to reduce the debt and the deficit or made doing so a policy priority.
Around three quarters of the analysts that we polled expect the fiscal deficit to be larger under a Trump presidency than under a Harris presidency. This is because of Trump’s proposal to reduce the tax burden plus the higher defense spending that’s likely under his leadership, which will easily offset extra tariff revenue. The U.S. Committee for a Responsible Federal Budget estimates that Trump’s program would add nearly USD 8 trillion to the national debt.
Kamala Harris’ plans to boost social spending and tax credits for lower earners are at least partly offset by higher taxes on firms and the wealthy. That said, the fiscal deficit would likely remain the largest in the G7 under her premiership; the Committee sees Harris adding just over USD 4 trillion to the national debt, still a sizable sum.
While the U.S. government can afford to service its debt and markets’ appetite for U.S. Treasuries should continue to fund the large fiscal deficit, rising debt-servicing costs could still crowd out spending on other areas. The need to periodically gain Congressional approval to raise the debt ceiling adds an additional risk. If—as is likely—control of Congress is split between the Democrats and the Republicans, agreeing to raise the debt ceiling could be particularly difficult; failure to do so for several months after the debt ceiling becomes binding would stop the government from being able to meet spending obligations, entailing debt default and/or cuts to public services. The debt ceiling is currently suspended until January 2025.
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The Exchange Rate
Assuming that interest rates are higher under Trump than under Harris, this should also boost the value of the U.S. dollar under a Trump presidency by making investment in U.S. assets more attractive. That said, Trump has also criticized the strength of the dollar in the past, which creates the risk that he could attempt to devalue the dollar in some fashion through intervention in the foreign currency market or by coercing international partners to sell dollars. The effectiveness of any attempt to depress the dollar is dubious, and could generate significant market uncertainty.
The Stock Market
Though predicting the evolution of the stock market is notoriously difficult, Trump’s proposed tax cuts and light-touch approach to regulation suggest the U.S. stock market—which is already up over 20% so far this year—could on the whole perform more strongly in the coming years under Trump. That said, this could change if Trump’s protectionist and immigration policies begin to cause significant disruption to the economy. Different sectors will also show disparate performances under each candidate: A Trump win bodes well for energy and defense stocks for instance, while a Harris victory would be supportive for firms in the renewable energy space.
Tax Policies: A Critical Difference Between Trump and Harris
Both candidates have made a number of fiscal pledges on the campaign trail, which have sometimes been haphazard or short on detail. Below are the key highlights of each candidate’s plans.
Donald Trump’s Tax Plans:
Kamala Harris’ Tax Plans:
Long-Term Economic Implications of a Trump or Harris Presidency
A Harris victory would signify a status quo for the world economy. The U.S. would remain engaged with its international partners and continue to adopt a multilateral approach to foreign policy. The global fight against climate change would continue, albeit more slowly than many scientists have pressed for. Global trade policy would be more protectionist than during the 2000s and 2010s, and ties between China and the West would likely continue to fray, but there would be no sudden rupture in trade relations.
In contrast, a Trump presidency could—in its most extreme incarnation—lead to a substantial reordering of the world economy. If Trump hikes tariffs as high as he’s threatened to do, this could lead to retaliatory tariff hikes worldwide, significantly hampering global trade as well as economic and geopolitical interconnectedness. The U.S. could withdraw from overseas engagement, emboldening Russia and China to stake territorial claims in Eastern Europe and Taiwan, respectively. The battle against climate change would be dealt a significant setback, as funding for green energy would be reduced. And the independence of the U.S.’ institutions could be undermined if the government packs them with Trump loyalists.
As such, the choice for U.S. voters on election day in November is unusually stark: One candidate promising to keep a steady hand at the tiller, and the other pledging to rip up the political rulebook. The election results will reverberate the world over.
Expert Panelist Insights on the Economic Impact of the 2024 Election
“A Trump win might force the more-meaningful reassessment of the outlook on inflation given tariff commitments and potentially stop early Federal-Reserve easing. Moreover, Trump challenging the independence of the Federal Reserve – advocating for a greater role for the president within central bank policy – might exacerbate uncertainty around inflation and interest-rate trajectories if he re-enters office.” Dennis Shen, chair of the macroeconomic council, Scope Group
“Implementation of a radical approach on illegal immigration (large scale deportations) would reduce potential output of the US economy and constitute an additional source of inflation.” Klaus-Jürgen Gern, researcher, Kiel Institute
“Trump’s tax cut proposals are bigger than Harris’s, and his platform does not include any measures to raise more revenue beyond tariffs. Neither candidate has proposed anything substantial in terms of spending cuts.” Francis Généreux, senior economist, Desjardins
“Tariffs under Trump will initially be GDP limiting with a view to boosting domestic industry. Activity under Kamala will be GDP positive at first, under a continued spending impulse, but leftist policies are due to hamper medium term investment potential and put strain on debt levels and credit rating. [...] Most of the [fiscal] deficit is locked in [due to] continuing commitments. I don’t think that any of the administrations will be able to cut defense spending, the only item that has a certain degree of discretionary spending.” MAPFRE Economics
“Trump will likely re-affirm the credibility of his import tariff threats by swiftly imposing import tariffs near the levels previously proposed. Subsequent retaliatory tariffs by China and renegotiations could result in a significant reduction of tariffs, though likely above current rates.” Roland Metzenmacher, economist, BayernLB
“We expect that [Trump’s] advisors will keep him from following through with a 60% tariff on all imports from China. But we expect additional tariffs on most Chinese goods in the coming years though this will not shrink the trade deficit in any meaningful way. As with additional tariffs on Chinese goods, this threat [of a blanket global tariff] will likely lead to negotiations and some kind of deal with the most important trading partners. Additional or higher tariffs are still likely, but not across all countries and categories of goods.” Martin Weder, chief economist, ZKB