In his campaign, former President Donald Trump has heavily emphasized issues related to international economics. Specifically, his two top-priority proposals are to (i) drastically reduce both legal and illegal immigration and carry out "the largest domestic deportation operation in American history" and (ii) cut U.S. imports by imposing universal tariffs on all imports into the U.S. On this latter point, Trump seeks tariffs of up to 20% on all goods from all countries, with the exception of China, where the rate would instead be 60%. Trump sometimes justifies these tariffs by arguing that companies would be forced to locate their production in the U.S. if they wish to sell in the American market, but often he also frames them as a source of revenue for the government. In recent weeks, Trump has even proposed eliminating income tax entirely, relying instead on tariff revenue (though vice-presidential candidate JD Vance appears to disagree on the idea's viability). This would mark an extremely radical shift in U.S. economic policy.
Vice President Kamala Harris, on the other hand, has been far less focused on international economics, instead concentrating much more on domestic policy. Her focus includes strategies to curb inflation and create improved economic opportunities for the middle class, as well as restoring reproductive rights. What many may not realize is that regarding trade policy, the Biden-Harris administration has, to a surprisingly large extent, continued along the path Trump started during his presidency. Specifically, the trade barriers imposed under Trump have largely been maintained. Because Harris has not emphasized trade policy, it is unclear how she might act on this front as president, but there is no indication that we would see a radically more liberal trade policy. It is also worth noting that as a senator, VP Harris was relatively lukewarm on the trade agreements negotiated by President Obama. For example, she opposed the Trans-Pacific Partnership (TPP) as a Senate candidate (one of Trump's very first actions as president was to formally announce the U.S.'s withdrawal from the agreement). That said, Harris is not ideologically opposed to trade and trade agreements, so the best guess is that we would not see any drastic change in trade policy if Harris wins, and there may be room over time for new trade agreements between the U.S. and the world, including the EU.
What Will Happen in the U.S. if Trump Wins?
Increased Import Costs
Starting with trade policy: a tariff is a tax on imports, so drastically increased tariffs will raise the cost of importing goods into the U.S., which will subsequently increase prices for all who consume these goods, including households and businesses. VP Harris, who has criticized tariffs as a "sales tax on the American people," is likely correct in this criticism. Interestingly, Trump might theoretically be partly correct in suggesting that tariffs could act as a "tax on another country" since, as economics students learn, a "large country" can shift some of the tariff burden to other countries if it can lower the price that the exporter receives. However, a growing body of research analyzing Trump's first trade war with China found that the entire cost increase due to Trump’s tariffs fell on domestic actors in the U.S. This means that, contrary to what Trump claims, none of the tariff revenue came from abroad. When fact-checking Harris and Trump, Harris has the edge here: U.S. consumers bear the brunt of tariffs, and while the state might collect new revenue, it comes from domestic consumers, not from foreign sources.
Protectionism Benefits Import-Competing Industries, Potentially Attracts Foreign Investment
Economics students also learn that the main beneficiary of a tariff is the import-competing industry, as long as it doesn't suffer from increased costs for the inputs it needs. While the benefits for this sector are less than the overall losses for consumers, some industries may be satisfied with the tariff policy. It’s also conceivable that foreign companies might choose to locate production in the U.S. to avoid being directly affected by the tariffs. This could represent a positive offset to the other negative effects for the U.S. (though it is challenging to see a net positive outcome).
Retaliatory Tariffs
The rest of the world will not remain passive in the face of increased U.S. trade barriers, and there is a strong likelihood that other economies (such as China and the EU) would respond with new tariffs on U.S. exports — for instance, the EU has already mentioned this possibility. If such retaliatory tariffs are imposed, they will negatively impact the U.S. export industry.
Effects of Mass Deportation
Aside from the humanitarian aspect of deporting millions of people, the negative economic impacts for the U.S. could be substantial. In short, many local communities would lose both workers and consumers, impacting both production and demand. As immigration becomes more difficult, it will also become harder for U.S. businesses to recruit people with specialized skills.
Reverse Robin Hood
Finally, if Trump were indeed to replace income tax with tariffs (though there is some doubt about whether this would actually be implemented), it would create a "reverse Robin Hood" effect. The wealthiest households would face significantly lower taxes overall, while the opposite would apply to the poorest households.
What Happens in the Rest of the World, Including the EU and Sweden, if Trump Wins?
The rest of the world would face significantly higher trade barriers than currently, which is expected to reduce exports to the U.S., a crucial export market for many companies. An economic downturn in the U.S.—both as a result of tariffs and as a side effect of deporting a large number of people—would further decrease demand for imports, amplifying the impact of increased trade barriers. As each country's trade with the U.S. is affected, global demand for imports from other nations could also decline, leading to even fewer export opportunities for, for example, Swedish companies. It’s hard to estimate the scale of these effects, but there's little to suggest anything other than a negative impact.
If Swedish and European companies choose to relocate production to the U.S., there’s also potential for negative employment effects in Europe. Notably, this impact would be even greater for China, which would face much higher trade barriers than other countries.
What Happens if Harris Wins?
The primary outcome is that the above effects would not materialize! For Swedish and European economies, a Harris victory would be much easier to manage, even though she may not be as pro-free trade as some might hope.