Tariff Risks in U.S. Election ‘No Joke’

Investors should be wary of the potential risks associated with increased US tariffs, especially following Republican presidential candidate Donald Trump’s recent comments on using import taxes as a cornerstone of his economic strategy, according to analysts at Wolfe Research.

During a campaign event on September 24, Trump threatened to impose 100% tariffs on all vehicles imported from Mexico and promised to provide research and development tax credits to manufacturers based in the US. He also stated he would implement a 200% tariff on agricultural equipment imports from John Deere if the company proceeds with plans to relocate production to Mexico.

Trump has previously indicated a broader plan to apply a general tariff of 10% to 20% on most US imports, alongside a substantial 60% tax on goods from China. He has argued that these measures would stimulate US manufacturing.

Polling data suggests that a significant portion of likely voters supports these tariff proposals and believes Trump would manage the economy more effectively than his Democratic opponent, Kamala Harris.

However, economists caution that such tariffs may exacerbate inflationary pressures. In a note to clients, the Wolfe Research analysts observed that despite the potential negative implications, tariffs have become a central theme for the Trump campaign. They noted that Trump is framing tariffs as a solution to various issues, including boosting domestic manufacturing and addressing the federal deficit.

Meanwhile, Harris introduced additional components of her economic agenda in an extensive policy booklet. She has criticized Trump’s tariff plans as a “sales tax” on American families and suggested offering tax incentives to encourage businesses to maintain operations in the US.

The Biden administration has also implemented tariffs and increased duties on select Chinese goods. Although Harris has not explicitly stated her intent regarding these policies, her campaign indicates a commitment to combating unfair trade practices that harm American workers.

When comparing the two economic strategies, Wolfe Research analysts pointed out the potential power dynamic in the 2025 policy landscape. They project that Republicans may gain control of Congress, facilitating Trump’s ability to advance his proposals while presenting challenges for Harris to implement her initiatives.

The analysts stressed that Trump’s reliance on existing presidential authorities for tariff implementation means that any indications of his commitment to these measures will have significant implications for the markets. In contrast, they suggested that investors may not need to focus on the specifics of Harris’ tax proposals.