It’s 2024, a pivotal year in the history of both the United States and the global order, as Uncle Sam approaches the crucial Presidential Election. What until a couple of months ago looked like a rematch between Joe Biden and Donald Trump has now evolved into a contest between Kamala Harris and Donald Trump.
It looks like the health of the United States economy and its future prospects will be the key issue in voters’ minds this time around. It appears that more people trust Kamala Harris over Donald Trump as someone who can better address economic issues. A poll conducted in August 2024 for the Financial Times and the University of Michigan Ross School of Business found that 42% of voters in the United States believe the presumptive Democratic candidate can handle the economy more effectively, compared to 41% who favoured the Republican candidate on this issue.
Was Biden’s withdrawal from the 2024 race surprising? One might say yes, considering that surveys conducted in April, May, and July showed only 35% of voters had confidence in incumbent President Joe Biden’s ability to handle the economy better than Trump. The former president was leading by a margin of 10% over the incumbent. In the poll conducted in June, 37% of people expressed confidence in the president.
Biden’s Reign: In Numbers
The power transition from Trump to Biden occurred during the 2020-21 period, when the global economy was at a standstill due to the COVID-19 pandemic. While the United States, under Trump’s leadership, recovered quickly compared to its Western peers, this trend continued under Biden’s administration, as the nation experienced the strongest pandemic recovery within the G7, as measured by GDP.
In Biden’s words, the US economy has been the “envy of the world” under his economic stewardship. To justify his stance, he pointed to data such as record job creation and historically low unemployment.
“Fifteen million new jobs in just three years – that’s a record! Unemployment is at 50-year lows. A record 16 million Americans are starting small businesses, and each one is an act of hope,” he remarked during his March 2024 State of the Union address.
During Trump’s four years in office (between January 2017 and January 2021), the average annual growth rate was 2.3%. Under the Biden administration so far, this figure has often exceeded the 3% mark since 2023.
When it comes to inflation, during the first two years under Biden, the price rise peaked at 9.1% in June 2022, followed by a downward trend. Trump claims that the US has experienced “the worst inflation we’ve ever had.” However, inflation was last above 9% in 1981. On the other hand, the rate has now fallen to around 3%, but it remains higher than when Trump left office.
To justify the above trend, it is worth noting that many other Western countries also faced extremely high inflation rates after 2021, as global supply chains experienced disruptions due to COVID and the Ukraine war. Economists also point out that Biden’s $1.9 trillion American Rescue Plan, which was enacted in 2021, contributed to the issue. The injection of cash into the economy led to further price increases.
The Biden administration has repeatedly highlighted strong job growth as a major achievement. Before the high unemployment in 2020 due to COVID, the first three years of Trump’s presidency saw the addition of nearly 6.7 million jobs, according to data on non-farm employment (which covers about 80% of workers in the labour force). Since the Biden administration took over in January 2021, there has been an increase of almost 16 million jobs.
Biden has claimed this as the “fastest job growth at any point of any president in all of American history,” and data from 1939 supports this assertion. However, analysts also point out that the current administration has benefited from a sharp rebound in economic activity as the country emerged from the pandemic.
“Many of the jobs would have come back if Trump had won in 2020 – but the American Rescue Plan played a major role in the speed and aggressiveness of the labour market recovery,” says Professor Mark Strain, an economist at Georgetown University, while interacting with the BBC.
Prior to the pandemic, Trump had delivered an unemployment rate of 3.5%. Lockdown measures led to soaring levels of unemployment in the United States, which then dropped to around 7% when Trump left office. Under the Biden administration, unemployment continued to fall to a low of 3.4% in January 2023, the lowest rate in over 50 years, but it has since ticked up to 4.3%.
In terms of wages, they did rise under Trump but at a similar rate to his predecessor, Barack Obama, until 2020. Wages increased rapidly at the start of that year, but the sudden uptick was linked to lower-paid workers being more likely to be laid off, which raised the average wage of those who were still employed. Under Biden, average weekly earnings have grown, but they have struggled to keep up with inflation.
US presidential elections are often won and lost on the economy. “It’s the economy, stupid,” coined by Bill Clinton during his 1992 election campaign, remains a popular slogan among American voters.
By the time Biden withdrew from the White House race, he was indeed fighting a battle of perception.
“The alarming fiscal trajectory of the nation has been made worse by a sharp increase in federal spending. Allies have been incensed by corporate investment subsidies in the United States, which may ultimately be ineffective. However, many of these policies are undoubtedly having an effect already. Just have a look at the construction boom in factories: even after taking inflation into account, investment in manufacturing facilities has more than doubled under Mr. Biden, reaching an all-time high,” The Economist noted.
Presenting Harris’ Vision
It revolves around the prosperity of middle-class and working Americans. Harris aims to facilitate 25 million new small business applications (including start-ups) during her first term, up from the record 19 million received under the Biden administration as of mid-August. This goal will be achieved through tax reliefs and simplification of bureaucratic red tape. She has already released a four-part package designed to make housing, groceries, child-rearing, and prescription drugs more affordable. Many of these proposals build upon efforts previously unveiled by the Biden administration.
However, these ideas come with significant price tags, and she has yet to detail how she will cover the costs. Her prior package would add $1.7 trillion to the deficit over the next decade, before interest, according to the Committee for a Responsible Federal Budget.
So far, her campaign has stated that she would increase the corporate tax rate to 28%, up from the 21% rate established by Trump’s 2017 tax cut law. This increase would raise about $1 trillion over the next decade, according to the committee.
Harris has also expressed support for the revenue-raising provisions in Biden’s fiscal year 2025 budget blueprint, which includes tax hikes on wealthy Americans and large companies. Overall, these measures would raise approximately $5 trillion.
Currently, small businesses are allowed to deduct up to $5,000 of eligible start-up expenses in the year they begin operations, according to the Congressional Research Service. Harris’ plan would expand the tax deduction to up to $50,000 and allow businesses to claim that deduction in the year they first turn a profit to ensure they receive the full benefit.
Additionally, Harris will advocate for increased investment in community development financial institutions (CDFIs), which are dedicated to serving low-income individuals and communities. While many small businesses struggled during the COVID-19 pandemic, those owned by people of color were hit hardest.
Harris’ affordable housing plan includes providing up to $25,000 in down-payment support and a $10,000 tax credit for first-time homebuyers. To spur construction, she would introduce a first-ever tax incentive for builders who construct starter homes sold to first-time buyers. She also plans to expand an existing tax incentive for building affordable rental housing and create a $40 billion fund for innovative housing construction.
Furthermore, the Democratic nominee will ban algorithm-driven price-setting tools for landlords and remove tax benefits for investors who purchase large numbers of single-family rental homes. While incentives to build more homes should increase inventory and help drive prices down, experts have warned that down-payment support could stimulate demand and lead to higher prices.
Harris’ $25,000 homebuyer credit and additional affordable housing policies are projected to cost $200 billion over a decade, according to the Committee for a Responsible Federal Budget, which assumed these provisions would be in effect for four years.
Among Harris’ other plans, she is advocating for a federal ban on price gouging to help lower grocery prices. Additionally, she supports restoring the American Rescue Plan Act’s popular expansion of the child tax credit to as much as $3,600 and extending the more generous Affordable Care Act premium subsidies that are set to expire at the end of 2025.
She also wants to expand the current $35 monthly cap on out-of-pocket costs for insulin and the upcoming $2,000 annual limit on out-of-pocket costs for prescription drugs to all Americans. These caps were initially established for those on Medicare under the Inflation Reduction Act. Harris is also backing the idea of accelerating Medicare’s drug price negotiations to reduce the costs of more medications more quickly.
Furthermore, she has expressed eagerness to work with states to cancel medical debt for millions of Americans. According to her campaign, states and municipalities have used American Rescue Plan funds to cancel $7 billion of medical debt for up to 3 million Americans.
Imagining US economy under Trump 2.0
Expect import tariffs, a hallmark of Trump’s first term, to return, along with more tax cuts and a sharp reduction in immigration.
Trump has been discussing the idea of targeted tariffs as well as an overall import duty of 10% on all goods entering the country. While the Republican repeatedly claims that China bore the costs of his earlier tariffs, economists view these moves as “a tax on Americans,” potentially leading to higher inflation.
“Such a tariff, and likely retaliatory tariffs from other countries, would increase the price of imported goods. It’s not clear how much this proposed tariff would affect the inflation rate. A bigger concern is that such a steep tariff and ensuing trade war would harm both American producers and consumers,” said Patrick Horan, research fellow at the Mercatus Centre at George Mason University,” while talking to the US News.
According to economist Kenneth Rogoff, Trump’s proposed tariffs on imports would have “recessionary effects on the US economy and could end up sending inflation higher again.”
The Harvard professor and former chief economist of the International Monetary Fund told Bloomberg that Trump’s proposed policies and Joe Biden’s current Inflation Reduction Act make them both the “most protectionist” presidential candidates the United States has seen in a while.
“10% tariffs, I think, would push up inflation. They’d push up interest rates. If you do it out of the blue, it’s very dislocating to the economy. I think it would tend to be very recessionary and inflationary,” he added, expressing concern that other countries might retaliate, potentially sparking trade wars and making Trump one of the biggest threats to the global economy.
Cutting taxes, especially on corporations and high-income individuals, has been a staple policy for Republicans. In 2017, Trump secured a $1.7 trillion tax cut from Congress. Economists widely agree that this move will further add to the nation’s debt if not offset by other cuts or revenue enhancements.
The Trump tax cuts are set to expire in 2025, and if the Republican returns to power, he will likely pursue an approach opposite to Biden’s: raising taxes on the wealthy.
The corporate tax rate, which was lowered to 21% from 35% as part of the 2017 tax cut package, may be maintained at the current level if Trump returns to office.
According to Allianz Research, “A Trump 2.0 presidency would inherit very large fiscal deficits from the Biden administration, rising interest expenses, and an economy probably more prone to bouts of inflation. Another round of large, deficit-financed tax cuts (or increased spending) could thus reignite inflation and heighten concerns about the sustainability of US public finances in the bond markets.”
Maxime Darmet, senior economist at Allianz Trade, even predicts that Trump might reverse some of Biden’s policies supporting green energy and high-tech manufacturing to finance his own industrial policy, which would be broader and less targeted than Biden’s.
Darmet noted that the current economic environment is significantly different from the one seen during Trump 1.0. Interest rates are now higher, which makes most of Trump’s industrial subsidies inflationary in nature.
While Trump’s accusation that the current Democratic administration has ruined the “greatest economy in the history of the United States,” which he created, may sound like empty rhetoric, the nation experienced a rapid and sharp recovery post-COVID under the Biden-Harris administration compared to its Western and G7 peers. Additionally, the current government has done a far better job of adding new jobs in record time.
If we take a close look at Kamala Harris’ roadmap for the US economy, it appears to be geared toward benefiting the middle class and working Americans by making housing, groceries, child-rearing, and prescription drugs more affordable. Additionally, she aims to support the growth of small businesses and start-ups. On the other hand, Trump, if elected for a second term, plans to implement targeted import tariffs, industrial subsidies, and more tax cuts, while reversing some of Biden’s policies in support of green energy and high-tech manufacturing. This approach would
finance a broader and less targeted industrial policy compared to Biden’s.
However, regardless of who becomes the next President, they will inherit an American economy with large fiscal deficits, rising interest expenses, and a potential for increased inflation. How the new leader addresses these challenges will be crucial in determining the nation’s future economic stability.