What's at Stake Economically South of the Border?

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The 2024 US presidential election cycle has become defined by hot-button topics, the familiar mudslinging, and the odd assassination attempt. Still, amidst all the confusion and bedlam, there is a steady focus from voters and observers alike on a critical aspect of both candidates' bids for the presidency—their economic policy.

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The Trump presidency's monetary policy was characterized by an "America First" attitude to trade, evidenced by heavy tariffs on China and goods such as steel and aluminum. These were met with retaliatory tariffs from several countries, and it is estimated that the resulting trade war cost American households 1700 dollars. President Trump maintains that this approach was ultimately successful, and his campaign promises to carry this trade philosophy forward, along with an increased 60% tariff on all Chinese goods and a 10% tariff on all US imports. The National Taxpayer Union estimates these tariffs will raise household expenses by $2600 yearly.

 

These changes may result in US consumers shifting away from imports in favour of American Goods. As for companies that still rely on China for their manufacturing needs, these tariffs may prove challenging, with Apple, Nike and General Electric being especially vulnerable. Chinese pharmaceutical imports will also be affected by the proposed tariffs, meaning companies like Pfizer, JandJ, and Amgen, which have plants in the US, stand to benefit. While Trump's aggressive tariffs may be criticized for increasing costs being passed down to consumers, it also resulted in many companies shifting their manufacturing operations to the USA, notably Tesla, GM, Intel, and Rexnord.

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Fig 1. Support for US goods rising as prices increased for foreign goods ​

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While not as aggressive as his predecessor, the Biden regime has also shown a partiality towards tariffs, and it is expected that if elected, Vice President Harris will inherit the same philosophy. Biden's tariffs were targeted mainly at the Chinese Automotive and Battery companies, levying a 100% tariff on all Chinese EVs and a 25% tariff on Lithium-ion batteries. This move was aimed at protecting domestic car manufacturers and American automotive jobs. The tariff on batteries may also incentivize American Companies to shift to purchasing their Lithium Ion batteries from domestic manufacturers such as Tesla, LG and GM. While these tariffs may be a blow to some companies, they allow others to make headway through alternative approaches. Chinese clothing company Shein utilized an interesting strategy to avoid the first round of tariffs imposed during the Trump presidency. By shipping their orders directly to consumers via their Chinese warehouses, they were able to ensure shipments fell within the tariff exemption for shipments less than 800 dollars in value, meaning that while clothing and shoe manufacturers like Nike and Adidas were hit with 25% tariffs and in turn increased their prices, Shein was able to stay the course and with comparatively lower prices, became a more attractive option for consumers.

 

A key element of Vice President Harris' economic strategy is the introduction of enhanced benefits and tax credits for families aimed at bolstering the middle class- a point both candidates have noted. A notable step in this regard is the LIFT Act, which Harris played a pivotal role in enacting. The LIFT Act provides an annual tax credit of $6,000 to families and $3,000 to individuals. Studies by the Pew Research Center reveal that families receiving credits from the LIFT Act primarily allocate these funds toward essential needs such as housing, food, and transportation. Additionally, those on the higher income spectrum within the Act's coverage tend to spend a portion on consumer electronics, with American companies such as Alphabet and HP being key beneficiaries. Harris' support of tax credits also goes back to her time as a Senator for the state of California, where she proposed the Rent Relief Act to provide credits to mid-low-income families who spent 30% of their income on rent and utilities. The Rent Relief Act helped real estate and construction in California by ensuring consistent rental income for landlords, which enabled them to stay current on mortgages and payments.

 

President Trump, for his part, also put in place several credits and tax provisions, namely the Tax Cuts and Jobs Act, which was primarily aimed at lowering corporate tax rates to make US businesses more competitive and simplifying the individual tax code and individual tax rates. Corporate tax was reduced from 35% to 21%, and the Tax Policy Center found the Act lowered individual taxes by $1600. The Congressional Research Service also reported that in the years following the passing of the TCJA, significant repurchases of shares from companies like Apple, Microsoft, Alphabet and Boeing occurred.

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Fig 2. US consumer sentiment as to how the economy is doing indicates how the economic policies are being received.​

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Both candidates have placed energy policy at the heart of their plans for economic growth. However, their approaches and beliefs in this regard vary drastically. The Biden-Harris administration has made it clear that they believe in a push towards renewable energy and a transition away from fossil fuels and gas-powered vehicles, where President Trump has been a keen proponent of utilizing the US' natural resources- mainly coal. High petrol prices have partly defined the last few years of the Biden Administration. A gallon of gas rose from $2.33 when President Biden took office to $3.60 at the time of writing, with a peak of $4.81 in 2023. Rising gas prices benefit the energy sector and companies involved in the production and refining of oil and gas, with BP, ExxonMobil and Chevron seeing considerable increases in earnings and share price in the last three years. These rising gas prices, however, have had broader economic consequences as they have raised expenses for American families, leading them to cut back on spending in non-essential areas while also increasing operating costs for transportation companies and Airlines, resulting in raised prices for logistics companies and higher airfare prices. The volatility in gas prices under Biden and Harris has also pushed many consumers toward electric vehicles, which are a part of the Green Energy push that Harris has been an advocate for. As District Attorney, Harris created an environmental justice office; as a senator, she sponsored the Green New Deal; and her track record of supporting Green energy seems as if it will continue into her bid for the presidency. In her 2019 presidential campaign, she flirted with the idea of a carbon tax and also proposed a $10 trillion climate plan as well as a blanket ban on fracking. These moves threaten fossil-fuel-dependent companies in the energy sector, and some fear the carbon tax burden may be passed down to consumers. As more details emerge about the specifics of Harris' climate plan, there may be cause for celebration for American Green energy companies, specifically as it relates to solar panel manufacturing. At present, China dominates the production of solar panels; however, with Harris' commitments, there is an opportunity for domestic manufacturers like First Solar and Brookfield to close that gap.

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Fig 3. Price of gas in the US over the years

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President Trump's energy philosophy differs significantly from this; during his time as president, he focused heavily on maximizing the use of coal, oil and natural gas. As part of his energy policy, he relaxed restrictions on methane emissions for companies while also lifting coal mining bans that had previously been placed on federal land. Trump also famously withdrew from the Paris Agreement to avoid commitments to reducing coal dependence. Companies like Peabody Energy, Arch Coal and Murray Energy, which had previously been in decline, saw growth thanks to these policies. Trump also approved the construction of a number of oil pipelines, like Keystone XL and Dakota Access, which were built by TransCanada and ETP, respectively, that reduced reliance on foreign oil and boosted domestic oil production on the Gulf Coast. Trump's regard for fossil fuels is matched only by his disdain for renewable energies like solar panels, which he has criticized heavily for their lack of economic viability and unreliability. Trump also has had some choice words for wind turbines, thanks to the threat they may pose to birds, nearby property values, and golf courses.

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At this point in the election cycle, there is much to be determined; there are debates yet to occur, policy to be revealed and nicknames yet to catch on. However, as this race unfolds, it is vital that we separate ourselves from the smoke, mirrors and emotional misdirection and that we keep a keen eye on the economic reverberations that come from it; we must maintain our focus on the tangible economic impacts that these political decisions and shifts will bring. Each candidate's proposed policies, stance on tariffs, taxation, and energy, and overall vision for economic growth will profoundly affect the global economy. By staying informed, we can better navigate the uncertain waters ahead and capitalise on opportunities that may arise.

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