Would Harris or Trump be better for the world economy?
A major uncertainty looms over the global economy: who will be the next US president. While the US is home to only 5% of the world’s population, and contributes just 15% of global value added, its role in shaping the world economy is unmatched.
Given this, the trade policies of the next administration – whether led by US vice-president Kamala Harris or former president Donald Trump – will undoubtedly have significant spillover effects.
Trump’s Trade Policies: A Recipe for Disaster
We know what Trump is likely to do: raise US tariffs on imports from China to 60%, and impose a 10% tariff on imports from all other countries. These policies would hurt Chinese exports to the US the most, but many other countries’ US exports would also decline, though a few – those providing substitutes for Chinese goods – might benefit.
Supply Chain Disruptions and Global Trade
Economies that depend on supply chains that include China would also suffer. Many South Korean and Japanese firms export parts and components to China, where they are combined with China-made parts and components, and possibly assembled into final products, for export to the US and elsewhere.
Global Trade Order and the US
Trump’s proposed tariffs would also have two less obvious effects – neither of which is desirable for the US. First, they would act as a drag on US exports to many countries, because the overall US trade deficit is determined less by America’s own trade policy than by a shortage of US national savings relative to investment.
Kamala Harris: A New Path Forward
The contours of Harris’s likely trade policy are less clear. One can imagine her upholding US president Joe Biden’s approach to trade, which is slightly less erratic than Trump’s, but remains a blight on Biden’s economic-policy legacy.
Rejoining the CPTPP: A New Beginning
A continuation of Biden’s policies would still advance America’s relative decline as a trading country, just not as quickly as Trump’s tariffs would. However, Harris might seek to revive US leadership in global trade, not least by rejoining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
The CPTPP: A “WTO Plus” Agreement
The CPTPP evolved from the Trans-Pacific Partnership – an agreement that Obama spearheaded, but was never ratified, owing to Trump’s 2017 decision to withdraw from it. It was thanks to the Japanese leadership that the CPTPP was ratified the following year.
Conclusion
In conclusion, Trump’s trade policies would likely lead to a global trade recession, while Harris’s potential approach could revive US leadership in global trade. If she combines an open trade policy with domestic redistribution, she may usher in a global trade revival that boosts the US economy and enhances US global leadership.
FAQs
* What are the potential effects of Trump’s trade policies on the global economy?
+ Trump’s tariffs would hurt Chinese exports to the US, leading to supply chain disruptions and global trade contractions.
* What is the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)?
+ The CPTPP is a trade agreement among 11 countries, focusing on market access, institutional requirements, and state-owned enterprises.
* Can Kamala Harris revive US leadership in global trade?
+ Yes, by rejoining the CPTPP and promoting open trade policies, she may revive US leadership in global trade.
Shang-Jin Wei, a former chief economist at the Asian Development Bank, is professor of finance and economics at Columbia Business School and Columbia University’s School of International and Public Affairs. The views expressed are those of the writer and do not necessarily reflect those of FMT.