How the Upcoming US Election Might Impact Import-Export Businesses
Although most Americans probably give little or no thought to global trade policies when they cast their votes, there are some good reasons to think otherwise.
The most recent US presidential election happened on November 3, 2020, and the next one is rapidly approaching. Although American presidential elections happen only every four years, their impact on imports and exports can last weeks, months, or even years. Economic and political events (particularly when the results are uncertain) and breaking news can dramatically impact global financial and trade markets, causing certain instruments to increase and others to drop in value. While most people don’t possess strong views on trade, some groups have much to win or lose from trade deals like the Trans-Pacific Partnership (TPP).
Research released by the National Bureau of Economic Research examined whether US workers affected by international trade impact who will win the presidency. The study showed that increasing imports in the US is connected with declining support for incumbent presidents and their political parties.
However, incumbent presidents and their parties tend to get more votes when the US has increased exports. According to one of the researchers, this finding “sheds light on why presidential candidates have come out in opposition to trade agreements like the Trans-Pacific Partnership (TPP). Many manufacturing workers in swing states are not happy with how trade agreements have exposed their jobs to competition from abroad.”
The 2020 Election and the Trade Wars
The 2020 United States presidential election pitted the Republican candidate Donald Trump against Democratic candidate Joe Biden. Both had highly disparate policy views on finance, economics, environmental governance, trade, and other critical areas. China is the largest trading partner of the United States, and the United States is the second largest trading partner of China. While Trump had enacted numerous sanctions against China’s economic development during his term (penalties that cost the US an estimated 245,000 jobs), Biden aimed to ease tensions with China.
The 2020 election results seemed to show that voters rewarded Trump for safeguarding their local economy through US trade war tariffs but punished him for foreign retaliation that damaged their local economy. Without the pro-Trump effect of US trade war tariffs, experts think Trump likely would not have been close enough to force recounts in the states he needed to win to secure the election.
After the election, Biden kept Trump’s tariffs on Chinese imports, although scaling them back would likely have benefited the US economy and created jobs. According to a 2023 US International Trade Commission report, American rather than Chinese importers bore most of the costs of the tariffs.
Even a moderate rollback in tariffs could have stimulated economic and employment growth. For example, if both governments gradually cut back average tariff rates to around 12 percent, the US economy would produce an additional $160 billion in real GDP over the next five years and employ an additional 145,000 people by 2025. In this scenario, US household income would have been $460 higher per household due to increased employment, incomes, and lower prices.
Steen Jakobsen, chief economist at Saxo Bank, has called the 2020 US election “the biggest political risk we have seen in several decades.” In the wake of the election, economists feared that if President Trump was re-elected, tensions would continue to rise with China, and he could also start a trade war with Europe, as he had previously threatened to do. According to Jakobsen, a trade war would have damaged both the European and US economies, though the EU stood to lose more if tariffs were imposed on its exports to the States.
2024 Election ‘Serious Risk to European Economy?’
US politics are a “serious risk” to Europe’s economy, according to Berenberg Bank’s Chief Economist Holger Schmieding. He said a victory for Biden in the upcoming 2024 election could bring with it another challenge for Europe, and a “blue wave” Democratic sweep could “potentially pave the way for major tax hikes in the US and excessive labor market regulations that may curtail US trend growth and affect export-oriented Europe.”
Biden has proposed to hike the minimum corporate tax rate to 15% and access a social security payroll tax for high earners. Combined, it is estimated that these tax changes would create a 9 percent drop in S&P 500 earnings that would hit communication services, healthcare, and information technology the hardest, as those companies generally have the lowest tax rates. Uncertainty remains about whether Biden would implement those tax changes in a weak economic climate.
According to Tom Hainlin, senior investment strategy director at US Bank, the healthcare sector often experiences amplified volatility in the weeks and months before a presidential election. Because healthcare policy is largely determined by lawmakers, a new president’s approach to healthcare is most likely to progress if their party is in a majority position and can affect the passage of legislation by Congress.
However, more than any other issue, Hainlin believes trade is a significant factor affected by election results. He said it’s not only a question of who occupies the White House, but instead is often a matter of whether the President’s supporters control Congress since the legislative branch must approve new trade deals. Hainlin also noted that the energy sector is often subject to increased volatility due to the differing regulatory philosophies of the two US political parties on domestic energy production and the controlling party’s desire to create incentives for new “green” energy sources.
Although, at this time, it is impossible to predict which way the 2024 election will go, import and export companies should begin to prepare for either outcome. Amid all the uncertainty, one thing is sure: After the election is over, import and export companies must reevaluate how the policies that newly elected officials support might impact the global economy and shift their approaches accordingly.
Blair Consular Services Ltd. remains the first source of contact for exporters who require advice on Embassy requirements and procedures. Whether you are an exporter or a freight forwarder, we can assist you with the certification and legalisation of your export documentation to clear customs overseas. To find out more, please visit our services page.