Economics Roundtable: U.S. Election And Tariffs

Summary

In this episode of 'Thoughts on the Market,' Morgan Stanley's economists discuss the implications of the upcoming U.S. elections on tariffs, immigration, and fiscal policy. With the presidential race between Vice President Harris and former President Trump in a dead heat, uncertainty looms over future policies. The economists analyze how potential tariffs could affect inflation and economic growth, particularly in relation to China’s economy and global corporate confidence. They also explore historical precedents from Trump's previous administration and the possible retaliatory responses from the EU. Overall, the conversation underscores the complex interplay of politics and economics as the fourth quarter of 2024 approaches.

Takeaways

• 📅 The discussion took place on October 8, 2024, as the U.S. elections approach, highlighting the global economic implications.
• 📊 Vice President Harris and former President Trump are in a tight race, creating uncertainty for policymakers and market participants.
• 🔧 Tariffs, immigration policy, and fiscal policy are identified as three key policy levers influencing the economy.
• 💰 Tariffs are essentially taxes that can boost inflation while negatively impacting economic growth, especially in consumption and manufacturing.
• 🇨🇳 Proposed tariffs on China by the Trump campaign could exacerbate deflationary pressures in the Chinese economy.
• 📉 China is currently facing challenges in managing deflation, making it harder to respond to potential tariffs compared to previous years.
• 🇪🇺 The EU could face additional economic strain if U.S. tariffs are reintroduced, potentially impacting European GDP by around 30 basis points.
• ⚖️ Retaliation from the EU is likely, especially through services regulation, as seen during previous tariff disputes in 2018 and 2019.
• 🌍 The global corporate confidence and investment in China could suffer due to the uncertainty surrounding future tariffs.
• 🔍 The discussion underscores the complexity of international trade relations and the interconnectedness of global economies in the face of U.S. policy changes.

Q & A

What is the main focus of the podcast episode?

The podcast focuses on the implications of the upcoming US elections, particularly regarding tariffs and their potential effects on the US and global economies.

Who are the main speakers in this episode?

The main speaker is Seth Carpenter, Morgan Stanley’s Global Chief Economist, along with other economists from Morgan Stanley's global team.

What are the key policy levers discussed in relation to the upcoming US elections?

The key policy levers discussed include tariffs, immigration policy, and fiscal policy.

How might the election outcome affect tariff policies?

The outcome of the election will significantly influence tariff policies since tariffs are primarily a presidential authority.

What potential impacts could tariffs have on the US economy?

Tariffs could boost inflation by acting as a tax on consumption and domestic capital expenditure, while also potentially hindering economic growth.

What challenges does China face regarding potential US tariffs?

China is already dealing with deflation, and additional tariffs could exacerbate these deflationary pressures and negatively impact corporate confidence and investment.

What lessons can be learned from the 2018-2019 tariff situation?

The 2018-2019 tariff situation provides a template for potential future trade tensions, but current proposals may target a wider range of goods, leading to more significant impacts.

How might the European Union respond to new US tariffs?

The EU may respond by filing complaints with the World Trade Organization and considering retaliation through regulations on US services, although they may avoid imposing tariffs on energy products.

What specific tariff proposals did the Trump campaign make regarding China?

The Trump campaign has proposed tariffs of up to 6% on China and 10% globally, which could lead to broader economic decoupling.

Why is there uncertainty in the economic outlook as mentioned in the podcast?

The uncertainty stems from the close race between political candidates and the lack of clear signals on future policy directions, particularly regarding tariffs.