Trump vs. Harris: Looming tariffs threaten global markets

On Tuesday, November 5, after a lengthy campaign filled with invective, Kamala Harris stands in the Democratic blue corner. In the Republican red corner is Donald Trump.

The rivalry is so fierce that it's difficult to point out an assured favorite. However, if you believe bookmakers and financial markets, then in January 2025, Trump is expected to move into the White House for the second time. One of his main ideas to "make America great again" involves launching a wave of tariffs on imported goods.

On one hand, according to the Republican candidate, this would strike the exporter, forcing them to apply lower margins to compete with domestic products. They would earn less, while the winners would be companies producing in the U.S. and the federal budget itself.

The Republican believes that tariffs are a disciplining tool. He claims he can avert war even before it starts with "one phone call" because "whoever is leading a country" with plans for conflict will "chicken out at the prospect of losing the American market." Trump threatens China with imposing tariffs on Chinese exports up to 150% or even 200% if they invade Taiwan.

Trump does not only want to use tariffs as an alternative to sending troops. It is also his basic plan to strengthen the U.S. economy. He has promised to impose tariffs of 60% on Chinese goods imported to America, perhaps even higher, regardless of whether there is an attack on Taiwan.

The mere introduction of tariffs is not surprising and is not a move used only by the U.S. The European Union also intends to impose tariffs on Chinese cars due to the substantial "financial doping" Beijing applies in this sector, which is already perceived as unfair competition for car manufacturers in Europe.

However, Trump does not intend to stop with China, which he sees as the main enemy of the U.S. and which is benefiting from the American market. He also accuses European countries (effectively allies) of exploiting the U.S. because, in his view, they buy too little from America. Therefore, he plans to introduce tariffs of 10-20% on nearly all imports, including from Europe.

It should be noted that Democrats have not avoided the use of tariffs either. It's enough to mention that the administration of President Joe Biden, who defeated Trump in the previous elections and replaced him in the White House, decided to introduce higher tariffs on a range of products from China. This includes electric cars (an increase from 25% to 100%) and semiconductors (an increase from 25% to 50%).

The American think tank Tax Foundation estimated that the tariffs imposed by Trump and Biden will, long-term, lower the country's GDP by 0.2% and eliminate 142,000 full-time jobs. It should be added that in the situation where - as the U.S. Trade Representative's Office reports - about 94% of U.S. imports are industrial goods, half of which enter the country duty-free.

Tax Foundation estimates that fulfilling Donald Trump's election pledge will reduce GDP by at least 0.8% and employment by 684,000 full-time jobs. "Our estimates do not account for retaliation or the additional harm that would result from the start of a global trade war," the analysis states.

The European Union does not intend to stand idly by in the face of potential moves by the Trump administration. "The Wall Street Journal" reported that in Brussels, officials are holding frequent meetings in preparation for an economic battle with Washington, especially if Trump follows through on his promises to impose 10% tariffs on imports. A high-ranking European diplomat told the newspaper that the bloc plans to impose tariffs on American goods produced in Republican-controlled districts. - However, everybody here primarily wants to avoid a trade war between the EU and the U.S. - he emphasized.

- Higher tariffs are obviously not good news for the world. China, whose products Trump wants to subject to tariffs of up to 60%, should be particularly worried. But Europe will also feel the impact, as it already struggles with economic downturns. Available estimates indicate that both would have to reckon with a GDP decline of between 0.5% and 1.5%. The decline in the competitiveness of European goods could affect the volume of exports to the U.S. and particularly affect Germany, Italy, and Ireland, which have significant exposure to the American market - comments Prof. Dominik Kopiński, senior adviser from the world economy team of the Polish Economic Institute, for money.pl.

It's possible that the trend of moving production to the U.S. to avoid tariffs, which began to materialize somewhat after the U.S. administration's adoption of the Inflation Reduction Act (IRA) in 2022, will strengthen. In fact, Trump has openly declared that he wants to take away jobs from other countries through reindustrialization. These negative effects might be partially mitigated if the dollar appreciates, which cannot be ruled out. This could be facilitated by increasing demand for American products, potential tax cuts and deregulations, as well as interest rate hikes if Trump's policy boosts inflation - the expert adds.

Regarding a potential response from Brussels to the Republican administration's tariffs, Prof. Kopiński responds: - If we take 2018 as a point of reference, when Trump imposed tariffs on European steel and aluminum, Europe may lean towards de-escalation. On the other hand, European officials probably now know that Trump only understands forceful arguments, and his radical proposals could just be a prelude to tough negotiations.

Interviewees for money.pl predict that in response to restricted access to the U.S. market, companies from China will act more aggressively in other markets, including Europe.

Even now, there are tensions between the European Union and China over electric cars. The EU intends to impose tariffs on them for similar reasons Joe Biden cited when raising tariffs in the United States - massive state subsidies used by Chinese manufacturers that make competition with them "unfair."

So far, the Chinese have targeted French brandy in retaliation.

- On the other hand, in the longer term, one could consider a scenario where, despite growing isolation of the U.S. — which is nevertheless doubtful, as the U.S. is heavily dependent on trade — Europe and China get closer - notes the PIE expert.

A third scenario suggests a lack of unity in Europe on tariffs on electric vehicles. It appears that the political establishment of the EU may want de-risking, but the European industry does not necessarily. This may suggest that Europe will tighten relations with China in some areas while seeking greater strategic autonomy in others. This all highlights the internal contradiction of Trump's policy, which, on one hand, wants to isolate China, but by imposing tariffs, could push Europe more into the arms of China - comments Prof. Kopiński.

- But regarding Trump's announcements, the most important thing is whether this is merely a form of negotiation pressure or a real readiness to start a trade war. If it's the latter, the whole world will feel it significantly - summarizes Prof. Orłowski.