Economics Roundtable: U.S. Election And Tariffs

Morgan Stanley

9 Oct 202406:35

Summary

TLDRIn 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.

Outlines

00:00

📊 US Elections and Economic Implications

In this episode of 'Thoughts on the Market,' Seth Carpenter discusses the implications of the upcoming US elections on various economic policies, including tariffs, immigration, and fiscal policy. The race between Vice President Harris and former President Trump is close, creating uncertainty for policymakers and market participants. The conversation highlights how tariffs are a significant presidential authority, and the potential for tariffs to increase inflation while negatively impacting economic growth. The discussion also covers the challenges China may face if tariffs are implemented, particularly regarding deflation and corporate confidence. The episode concludes by addressing potential responses from Europe if tariffs are imposed, recalling the events of 2018-2019 when targeted tariffs were enacted.

Mindmap

Keywords

💡Tariffs

Tariffs are taxes imposed by a government on imported goods and services. In the context of the podcast, tariffs are discussed as a critical policy tool that the U.S. administration may manipulate post-elections. The potential increase in tariffs, particularly under a Trump administration, raises concerns about inflation and economic growth, impacting consumption and investment in the U.S. as highlighted when discussing their effect on domestic manufacturing and capital expenditures.

💡U.S. Elections

The U.S. elections are a political process where voters select their leaders, significantly influencing domestic and foreign policies. The podcast emphasizes the uncertainty surrounding the elections, especially the tight race between Vice President Harris and former President Trump, which leaves policymakers and market participants guessing about future economic strategies. The discussion includes how election outcomes can affect key economic levers like tariffs and fiscal policies.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. The podcast mentions inflation as a potential consequence of increased tariffs, with the argument that tariffs act like a tax on consumption spending. This inflationary pressure could have significant implications for economic growth, as higher prices may lead consumers to reduce spending.

💡Deflation

Deflation refers to a decrease in the general price level of goods and services, which can lead to reduced consumer spending and economic stagnation. In the discussion, deflation is particularly relevant to China, which is already facing this challenge. The panel notes that additional tariffs could exacerbate deflationary pressures in China, complicating their economic recovery efforts.

💡Fiscal Policy

Fiscal policy involves government spending and taxation decisions that influence economic activity. The podcast indicates that the upcoming elections will impact fiscal policy, which could be influenced by the makeup of Congress. With expectations of a split Congress, economists suggest that significant changes in fiscal policy are unlikely, maintaining the status quo in government spending and taxation.

💡Immigration Policy

Immigration policy determines the rules and regulations governing who can enter, stay, or work in a country. The podcast briefly touches on immigration policy as another key lever affected by the election outcomes. Given the decreasing immigration flows noted, the potential for new policies could further influence the labor market and economic growth, though specifics are unclear.

💡Corporate Confidence

Corporate confidence reflects businesses' optimism about future economic conditions, influencing their investment decisions. The podcast emphasizes that tariffs can negatively impact corporate confidence, particularly in China, leading to potential slowdowns in investment. This sentiment is critical for understanding broader economic trends and potential growth trajectories.

💡European Union (EU)

The European Union is a political and economic union of European countries that collaborate on various issues, including trade and economic policy. The podcast discusses the implications of U.S. tariffs for the EU, suggesting that retaliatory measures might follow if tariffs are imposed. The mention of previous tariff disputes highlights the interconnectedness of global economies and the potential for trade conflicts to escalate.

💡Retaliatory Tariffs

Retaliatory tariffs are imposed by a country in response to tariffs placed on its goods by another country. In the podcast, the possibility of the EU retaliating against U.S. tariffs is explored, indicating a cyclical pattern of trade conflict. The discussion suggests that such tariffs could target various product categories, though energy goods may be exempted, showcasing the complexities of international trade relationships.

💡Global Trade Dynamics

Global trade dynamics refer to the patterns and interactions of trade between countries, influenced by policies, tariffs, and economic conditions. The podcast illustrates how U.S. tariffs could reshape global trade dynamics, affecting not only the U.S. and China but also Europe and beyond. Understanding these dynamics is crucial for grasping the broader implications of the election outcomes on international economic relations.

Highlights

Seth Carpenter introduces the podcast and discusses the upcoming U.S. elections and their global implications.

The current race between Vice President Harris and former President Trump is notably close, creating uncertainty for policy direction.

Key policy levers identified include tariffs, immigration policy, and fiscal policy.

Tariffs are viewed as a significant tool for the president, with potential implications for inflation and economic growth.

Tariffs are effectively taxes on consumption and domestic capital expenditure, likely leading to increased inflation.

Immigration flows are decreasing, raising questions about the impact of new policies on this trend.

Fiscal policy outcomes will depend on the balance of power in Congress, which is expected to be split.

China's economy is under pressure from deflation, making potential tariffs particularly damaging.

Trump's campaign may propose tariffs of up to 6% on China, adding to existing economic challenges for Beijing.

Previous fiscal and monetary easing strategies may not be effective for China in responding to new tariffs.

The potential for a broader economic decoupling between the U.S. and China is highlighted as a significant risk.

The EU's response to U.S. tariffs may include retaliation, following the historical context of the 2018-2019 trade tensions.

Tariffs during the former Trump administration were limited in scope but could have a more significant impact now.

The EU might file complaints with the WTO as part of its strategy against U.S. tariffs.

Retaliation from the EU may focus on sectors other than energy, due to the strategic importance of oil and gas.

The discussion emphasizes the uncertain economic environment as the U.S. elections approach.