Americans have chosen Trump. What implications does this have for the economy of the U.S. and the world?
Despite numerous foreign policy challenges, such as the war in Ukraine and the Middle East, the main concerns for Americans have been their internal issues, particularly the state of the economy.
This is not surprising, as nearly every voter has felt the impact of record inflation over the past few decades. Additionally, an increasing number of Americans are facing difficulties in purchasing housing, which has shifted from an integral part of the "American Dream" to an unattainable luxury, especially for young families.
Each presidential candidate has devoted a significant portion of their political promises to addressing these problems. However, their approaches differ radically and will have a noticeable impact not only on the U.S. economy but also on the global economy.
What economic policies have Trump and Harris declared, and how are financial markets reacting to the preliminary results of the American elections?
It Has Gotten Worse
Over the past two years, financial markets have closely monitored the efforts of the U.S. Federal Reserve (Fed) to find a balance between combating high inflation and preventing an economic downturn. It seems that the American central bank has indeed managed to do so.
Statistical data shows that U.S. GDP continues to grow at about 3% per year, unemployment remains low (4%), and wages are rising faster than prices. However, optimistic macroeconomic statistics have not been a decisive factor influencing voter sentiment.
The key issue that weighs most heavily on the well-being of Americans is inflation. Annual price growth rates reached 6-9% in 2021-2022. For Americans accustomed to inflation rates of 2-3%, this has been a significant blow.
The current wave of inflation began in 2020, with the lockdowns imposed due to the spread of COVID-19. At that time, the American government and the Fed initiated a large-scale monetary stimulus program to support the economy. Simply put, the U.S. began to "print" a lot of money, which initially flowed into the stock market, later into commodities, and ultimately led to rising prices in supermarkets.
This process was fueled by geopolitical tensions in U.S.-China relations, pandemic-damaged supply chains, and the Russian invasion of Ukraine. The latter triggered a surge in global food and energy prices.
To combat inflation, the Fed began raising the key interest rate, which made government borrowing more expensive and affected the cost of loans for businesses and individuals, particularly for mortgages. The increase in borrowing costs for home purchases coincided with a surge in real estate prices. According to the latest data from the Federal Reserve Bank of St. Louis, the average price of a sold home in the U.S. has increased by 35% since 2020, reaching $500,000.
Rental costs have also risen. For more than 22 million American households, rent exceeds 30% of their income, while an additional 12.1 million families spend over half of their household budget on housing, according to data from a Harvard University study.
Homeownership, which was once the foundation of the "American Dream," has become a luxury, especially for young American families. At the same time, many Americans believe that the economy is in a recession, even though statistical data indicates otherwise.
Against this backdrop, a trend has emerged on social media called silent depression, where young Americans complain that the state of the U.S. economy is even worse than during the Great Depression of the 1929-1930s, particularly due to the inaccessibility of cars or home ownership.
Thus, it is not surprising that economic policy has been at the forefront of the election campaign. Both candidates promised to improve the economic situation. However, their paths to achieving this differ significantly.
What the Candidates Promised
The key tool in the economic policy of both candidates is taxes. This is not surprising, as the tax cuts (Tax Cuts and Jobs Act or TCJA) enacted during Trump's previous term will expire in 2025, significantly lowering fiscal rates for businesses and individuals.
Despite accusations that the wealthiest Americans benefited the most from it, the tax cuts were neither canceled nor revised during Joe Biden's administration. Now, the future president must decide whether to extend the TCJA (which Trump insists on) or focus on supporting the most vulnerable citizens (as proposed by Harris).
Regardless, the candidates' proposals could come at a high cost to the American economy. According to calculations by the Committee for a Responsible Federal Budget (a non-profit, non-partisan organization), Harris's economic plan would lead to an increase in U.S. debt by $3.95 trillion, while Trump's plan would increase it by $7.75 trillion by 2035.
Although the presidential candidates' views on U.S. tax policy differ significantly, they share one common point: a promise to exempt "tips" from taxation.
What Harris Promised
Kamala Harris's tax policy proposes to raise taxes only for the wealthiest Americans earning over $400,000 per year. This means that for those earning less, taxes will remain unchanged, and the tax cuts enacted in 2017 will continue.
Harris promises to raise the capital gains tax (paid on income from the sale of securities and other assets) from 20% to 28%, and the corporate tax rate from 21% to 28%. Additionally, the vice president intends to introduce a "billionaires' tax," which will be paid by individuals whose net worth exceeds $100 million.
In return, she promises to introduce a child tax credit of $3,600 for children under 18 and an additional tax credit of $6,000 for children in middle-class and low-income families during the first year of the child's life.
A tax credit is an amount by which a taxpayer can reduce their liabilities to the government. Kamala promises that if the amount of tax obligations is less than the tax credit amount, the "excess" forgiven by the government can be refunded to citizens.
0 Additionally, the U.S. vice president stated that she would prohibit unjustified price increases for groceries in supermarkets. She plans to address the housing market crisis by stimulating the construction of homes through tax incentives and providing first-time homebuyers with a tax credit of $6,000 and a down payment of $25,000.
What Trump Promised
The Republican candidate promised to extend the TCJA and even implement further reductions in corporate profit taxes. For some companies, Trump proposed reducing the tax rate from the current 21% to 15%.
He also proposes to introduce additional tariffs on all goods from around the world, ranging from 10% to 20%. For Chinese goods, the rate could reach 60%, and for companies that choose to move their production from the U.S. to Mexico, Trump threatens to impose tariffs of 100-200%. Specifically, in September he threatened this to the agricultural equipment manufacturer John Deere.
Trump was the first to propose exempting "tips" from taxation, but unlike Harris, he wants to exempt overtime pay from taxes as well. However, this decision may lead to lower future social benefits for such workers, including pensions.
To support ordinary Americans amidst the cost-of-living crisis, the Republican proposed allowing citizens to deduct paid interest on car loans from their taxable income. He also promised tax benefits for caring for the elderly at home. Additionally, Trump stated his intention to cap the maximum interest rate on loans