US Election: Scylla And Charybdis

 

(Drivebycuriosity) - The election next week will decide who rules the US in the coming four years. The choice between Kamala Harris and Donald Trump reminds me of Scylla and Charybdis. The Greek mythology told about two monsters who were jeopardizing ships on both sides of a tight passage. Both candidates announced sweeping changes that are threatening the US economy and would hurt consumers and producers.

Vice President Harris had supported President Biden`s anti-business politics that increased the role of government and expanded the regulations, throwing sand into the delicate wheels of the economy ( driveby). No wonder that American economic growth is sluggish. 

The Liberal candidate is suspect to continue the course of the Biden-Harrisn administration. She is also "seeking to significantly raise taxes on the wealthiest Americans and large corporations" writes the New York Times ( nytimes). These tax hikes will slow business and create a lot of additional headwinds for the economy, curbing economic growth again. Higher taxes will raise the costs of doing business and force the affected corporations to hike their prices. So a part of the tax hikes will be paid by the consumers. The affected companies will also invest less and hire fewer people. Fewer investments and recruitments will slow economic growth further and harm consume.

Donald Trump`s former Presidency has a mixed record. He cut taxes significantly which raised company earnings. Trump´s tax cuts encouraged investing & hiring and created a tailwind for the US consume. He also curbed regulation, especially in the banking sector, which had hold back bank lending and daunted investing.  

But Trump thwarted these positive impulses by starting a trade war against China and hiked tariffs on imports significantly. Tariffs are taxes, so higher tariffs work like higher taxes. They raise prices for imported goods and disrupt supply chains & production processes. 

Trump announced that he wants to cut taxes again but also that he plans to severe the ongoing trade war with China - and maybe also with the European Union - by massively hiking the already high tariffs on imported goods from these regions.  

An aggravated trade war could reduce company earnings and slow down investing & hiring significantly. It would also disturb production processes in the US and raise consumer prices, hitting especially low income families. The higher tariffs would be paid by the US consumers who had to pay more for imported goods. 

Tariffs are taxes on imported goods. Much higher tariffs on Chinese products would slow US economic growth and would reduce even the demand for American goods & services because the consumers have to spend more money on computers, furniture, clothing, chemicals and plenty other goods which will curtail their budgets and raise the costs for companies (marketwatch). Even the allegedly protected US automobile industry would lose because they would to have to spend more for steel and many other pre-products.

China and other countries would certainly respond to new American trade barriers and would restrict their American imports as well. If Trump really goes into a full fledged trade war, American companies could lose their oversea markets. Beijing could replace Boeing orders by Airbus, halt purchases of US cars and iPhones and reduce the massive imports of US pork, corn, soybean & maize. According to Bloomberg US multinational corporations - including Starbucks & McDonald`s - have more than $228 billion invested in China (bloomberg).  Many US companies & farmers would lose customers and would be forced to fire employees. Many Americans would lose jobs, income & purchasing power.

Imports from China, including apparel, hardware, furniture and toys, would got more expensive, hurting families with low incomes. Higher prices for many imported products, including Aluminum & steel, will harm US car producers and other industries, which rely on cheap primary products, and suck money out of consumer`s wallets, reducing the purchases of US products. US farmers will lose markets because China might less corn, wheat & fewer pork from the US as a retaliation. The trade war will also disconnect complicated supply chains. As a result the trade war would destroy a lot American incomes & jobs.

History gives a warning. In the year 1930 the US implied high tariffs on over 20,000 imported goods (Smoot-Hawley Tariff Act) which provoked countermeasures by England & France. As a result global trade imploded and the recession became the Great Depression (smoot-hawley).

While many Americans are afraid of Russians, Chinese and other "evil foreign powers", the real danger lurks at home in Washington DC.