2024 U.S. Election: How Harris vs. Trump Could Shape the Global Economy

In the lead-up to the 2024 U.S. presidential election, the contest between Vice President Kamala Harris and former President Donald Trump has become increasingly tight, with polling suggesting a complex battle for both candidates. Initially, Trump held a modest lead over Harris, though smaller than his previous lead against President Biden. However, recent polls show that Harris has gained traction, moving from a 1.7-point deficit to a slight 2-point lead. This improvement is not limited to national figures but has also extended to crucial swing states. Harris is now ahead in states like Nevada, Michigan, and Wisconsin, while remaining highly competitive in others. Trump retains a strong lead only in Florida.

Historical election analyst Allan Lichtman, known for his accurate election predictions since 1984, recently indicated that he expects a Harris victory, though the results are still within the statistical margin of error. Exhibit 1 suggests that while Harris’s polling position has improved, a Trump victory in the electoral college is still possible due to specific state dynamics. Exhibit 2, however, shows that based on this polling, Trump still wins the electoral college count, although we would argue that 7 of 8 key states are now within polling error margins. This analysis recalls the 2016 election, where Hillary Clinton’s poll leads ultimately fell short in key swing states, and the 2020 race, where Biden narrowly secured his win (Exhibit 3).

The Potential Global Impact of a Harris or Trump Administration  

Domestic Economic Outlook under Harris  

If Harris wins, her policies are likely to emphasize government spending on infrastructure, education, and healthcare, with a focus on wealth distribution. This could boost economic activity domestically, though her policies might face obstacles if Congress remains split, which would limit the scope of her proposed reforms. Any economic growth driven by a Harris administration may spill over to other countries, especially if U.S. consumer demand rises. However, her focus on equitable distribution and regulated business practices might mean slower, steadier growth.

Trump’s Proposed Tariff and Trade Policies  

A Trump victory would likely signal a return to more aggressive trade policies. He has proposed imposing significant tariffs on imports, particularly targeting China with a 60% tariff, compared to a 10% tariff on goods from the European Union (EU). Trump’s focus on trade imbalances with China could lead to considerable economic strain, particularly affecting supply chains and raising costs for American consumers. For the EU, Trump’s tariffs could lead to heightened trade tensions, potentially escalating if the EU responds with retaliatory measures or implements its Carbon Border Adjustment Mechanism, a regulation aimed at taxing imports based on their carbon footprint.

Trump’s approach could lead to a stronger U.S. dollar and higher interest rates, as his policies encourage capital flows into the U.S. while potentially raising costs for emerging markets that rely on dollar-denominated debt. For countries with close trade ties to the U.S., such as Canada and Mexico, these trade dynamics could present economic challenges, increasing the cost of exporting to the U.S. and potentially straining cross-border trade relations.

Implications for Security and Foreign Policy  

On foreign policy, Trump’s previous administration exhibited a transactional approach to U.S. security commitments, particularly with allies in NATO. Should he return to office, similar policies could be anticipated, with possible reductions in U.S. military presence in Europe and Asia. This shift could require European nations to increase their defense spending to counter persistent security threats, such as Russian aggression. In Asia, Southeast Asian nations might need to reconsider their security frameworks as U.S. support becomes less certain, prompting regional nations to adapt their alliances and defense strategies.

Environmental and Climate Policies  

In environmental policy, Trump has indicated a shift away from climate initiatives, as seen in his withdrawal from the Paris Agreement during his first term. While he may not entirely undo Biden’s major environmental initiatives, Trump is expected to deregulate the oil and gas industries, which could increase domestic production and, in the short term, reduce energy prices. This might temporarily ease inflation pressures but would likely contribute to elevated greenhouse gas emissions in the long run. Harris, in contrast, is expected to uphold and potentially expand clean energy policies, supporting sustainable industries and aligning with international climate goals.

Global Economic Considerations  

The 2024 election’s outcome will have significant implications across various regions:

1. Europe: A Trump victory could strain EU-U.S. relations, especially if tariff policies are enacted or if the U.S. decreases its involvement in NATO. European economies, particularly those dependent on U.S. defense cooperation, may face budgetary pressures to increase their own defense spending.

2. China: Trump’s proposed tariffs and economic stance could hit China’s export-driven economy, amplifying trade tensions and impacting industries on both sides. These measures may also lead to ripple effects across Asia, as supply chains and trade routes are reshaped in response to a protectionist U.S. approach.

3. Emerging Markets: Emerging economies, particularly in Asia and Latin America, may experience increased volatility under Trump’s policies due to U.S. dollar appreciation and trade adjustments. Harris’s policies, however, could provide a steadier environment, with potential growth in exports tied to green energy investments and international collaboration.

4. Canada and Mexico: As the U.S.’s closest trading partners, these countries are highly sensitive to U.S. policy shifts, especially regarding tariffs and immigration. A Trump presidency could strain the United States-Mexico-Canada Agreement (USMCA), while a Harris administration might focus on strengthening North American trade ties with fewer disruptions.

High Stakes for the Eurozone: U.S. Election Outcomes and Their Trade Impact

The 2024 U.S. presidential election could carry significant implications for the Eurozone, especially in the context of trade dynamics and economic policy. The Eurozone’s economic exposure to U.S. trade policy shifts is particularly high due to its substantial trade surplus with the U.S. In 2023, the Eurozone exported approximately €450 billion worth of goods to the U.S., accounting for around 3.1% of the bloc’s GDP and resulting in a surplus of €133 billion (Exhibit 4).

The impact of the election, however, hinges on the candidate who prevails. A Kamala Harris win would likely maintain the status quo, with limited immediate impact on Eurozone-U.S. trade relations. In contrast, a Donald Trump victory could bring substantial changes, as he has expressed a strong desire to reduce the U.S. trade deficit—a goal that could lead to renewed tariffs or other trade restrictions affecting the Eurozone. If Trump implements policies to narrow this deficit, the Eurozone may see increased pressure on its export-driven economy, which could impact various industries within the bloc.

If Donald Trump were to secure a second term, he has proposed implementing a broad 10% tariff on imports from all countries, including the Eurozone. Currently, U.S. tariffs on European Union (EU) exports average around 3%, according to World Trade Organization data, meaning this blanket tariff would effectively increase EU export prices by 6.8%. With an estimated elasticity of demand of around -1, this tariff hike could reduce the Eurozone’s goods exports by €30 billion, or 0.2% of its GDP, suggesting a limited but direct economic impact. Additionally, much of the Eurozone’s value-added exports to the U.S. are in intermediate goods, which could lead to lower-than-expected demand reductions due to limited consumer-facing price effects.

Further moderating the impact, a likely depreciation of the euro against the dollar would improve the competitiveness of Eurozone exports. This currency adjustment could help offset the effects of the tariffs, potentially positioning the Eurozone to gain a competitive edge in other global markets, especially if other countries respond with retaliatory tariffs on the U.S. but not the Eurozone. Net trade has already positively contributed to Eurozone growth this year, with quarterly growth of 0.2 percentage points compared to no growth impact from 2014 to 2019. However, tariffs remain a direct risk, especially with the U.S. share of Eurozone exports up by 8% in recent years.

A larger indirect risk lies in the potential for a trade war among the major global economic blocs. Trump’s policies, particularly his stance on China, which includes threats of 60% tariffs, could spur retaliatory measures. Chinese exporters might seek alternative markets with comparable consumer bases, making Europe a likely target. Increased competition from Chinese products would intensify pressure on several European industries, some of which are already facing challenges. This could prompt the EU to consider its own tariffs on Chinese goods. However, achieving EU consensus on such tariffs may be difficult, as each member state has its own unique economic priorities. Moreover, political stability within the Eurozone has weakened since Trump’s previous term, and upcoming elections in Germany (2025), Italy (2026), and France (2027 at the latest) could further complicate unified EU responses.

For the Eurozone, a rise in global protectionism paired with economic uncertainty could hinder both domestic and foreign investment. The scale of this impact is challenging to predict but could be significant for short- and medium-term economic growth, as businesses may become more cautious about investing in an increasingly unpredictable global market.

European Security Concerns  

On the international security front, Trump’s promise to broker a “quick peace deal” in Ukraine raises concerns about continued U.S. support for Ukraine. If this implies reduced U.S. aid, the EU would struggle to match the level of support the U.S. currently provides, particularly in military materials. This shift could cast doubt on the U.S. commitment to NATO and European security at large, as many European nations have yet to meet NATO’s defense spending guidelines, despite recent increases in military budgets. A Trump presidency might demand a minimum level of contribution, but any perception of U.S. disengagement could lead European nations to increase defense spending significantly, further straining already vulnerable EU finances and possibly causing friction within the bloc.

Energy Price Volatility  

Changes in U.S. energy policy could also influence the Eurozone’s economy. Increased U.S. energy production combined with a peace agreement in Ukraine might contribute to lower natural gas prices, which would benefit the Eurozone. However, heightened tensions in the Middle East could drive up oil prices, complicating the Eurozone’s energy landscape. With its heavy dependence on energy imports, the Eurozone is particularly sensitive to fluctuations in global energy markets, and such price shifts could create additional challenges for its economy.

Navigating Trade Turbulence: What the 2024 U.S. Election Means for China’s Economy

The upcoming U.S. election is poised to have substantial economic implications for China, primarily through the risk of trade fragmentation. Both candidates, Kamala Harris and Donald Trump, have discussed the possibility of imposing tariffs on Chinese goods. However, Trump has suggested more aggressive tariffs—potentially up to 60%—compared to Harris’s more moderate approach. China’s economy, which relies significantly on exports for growth, especially in light of its domestic challenges, could face substantial strain under increased tariffs from the U.S. This would not only slow growth but also weaken investor confidence in China’s market.

Foreign investment in China has already been affected by rising government intervention and trade tensions in recent years. Should the U.S. impose higher tariffs, particularly at Trump’s proposed 60%, China could see a further reduction in foreign investments due to heightened uncertainties. In Trump’s previous term, U.S. tariffs on Chinese goods climbed from around 4% in 2015 to 21% by 2019, before stabilizing at 19.3% after the Phase-One trade deal in 2020. This led to a steep decline in Chinese exports to the U.S., which averaged a 3% annual decrease from 2018 to 2020. While the depreciation of the yuan by 11.3% during this period did help to soften some of the tariff impacts, it also underscored China’s vulnerability to shifts in U.S. trade policies (Exhibit 5).

If a comprehensive 60% tariff were imposed on Chinese goods, based on 2023 trade volumes, this would cost Chinese exporters over $200 billion annually, or about 1.2% of China’s GDP. Such a tariff could also trigger further depreciation of the yuan, possibly leading to significant capital outflows as investors seek more stable environments. The consequences could include lower growth rates, heightened disinflationary pressures, and potential job losses in export-dependent sectors, all of which would deepen existing challenges in the labor market and dampen consumer confidence in China.

The impact on the yuan and capital outflows could be especially acute. The yuan’s current weakness, exacerbated by a strong U.S. dollar and China’s economic slowdown, would likely intensify, potentially driving substantial capital flight if tariffs are raised. This would be particularly concerning if combined with declining growth and stock market instability, which would further elevate investor risk perceptions. Both domestic and international investors might look to move their capital elsewhere, fearing prolonged economic challenges.

However, there are a few mitigating factors. Compared to 2018, China has diversified its export partners, reducing its dependence on the U.S. market. Additionally, China has strategically embedded itself in global supply chains for crucial industries like semiconductors, solar panels, and batteries. While this diversification offers some resilience, these newer partnerships may still face risks if the U.S. applies sanctions or pressures third-party countries to limit trade with China—an approach often employed by U.S. Democrats in favor of traditional tariffs, which Trump has previously preferred.

EM Asia’s Delicate Balance Amid U.S. Election Uncertainty  

Navigating Geopolitical Pressures and Trade Dynamics

Emerging market (EM) nations in Asia are watching the U.S. presidential election closely, as the results will likely influence trade policies, economic strategies, and security relations in the region. Although a Kamala Harris win would likely result in minimal immediate changes for EM Asia, a Donald Trump victory could bring about significant challenges, particularly as the U.S.-China trade conflict intensifies.

Historically, EM Asia has benefited from tensions between the U.S. and China, especially during the 2018-2019 trade war, as they occupied a favorable middle ground. The trade war allowed EM Asia to attract investment from global companies employing a “China + 1” strategy, where firms diversify supply chains by setting up operations in other countries to mitigate tariff risks. Additionally, Chinese companies themselves have invested heavily in Southeast Asia to bypass U.S. tariffs.

This advantageous position relies on EM Asia’s ability to remain neutral and avoid aligning fully with either China or the U.S. However, under a Trump administration, such neutrality could prove increasingly difficult. An escalation in U.S.-China tensions may lead the U.S. to scrutinize relationships more closely, with Trump potentially seeking to correct what he perceives as an imbalanced relationship. Some EM Asian nations, which have widened trade surpluses with the U.S. while benefiting from American security support, might face increased pressure to align more explicitly with U.S. interests or face trade restrictions.

Trade Surpluses and Tariff Avoidance Challenges

EM Asia’s trade surplus with the U.S. has grown considerably since Trump’s first term. For instance, Southeast Asian countries have become essential intermediaries in Chinese supply chains, helping China navigate around U.S. tariffs. In the solar panel sector, this shift has been notable. After the U.S. raised tariffs on Chinese solar panels in 2012, Southeast Asia became a significant source of solar panel imports, accounting for about 80% of U.S. imports by 2023. Many of these imports are linked to Chinese firms, which process goods in Southeast Asia to avoid U.S. anti-dumping tariffs (Exhibit 6).

In August 2023, the U.S. Department of Commerce (DoC) determined that some Chinese companies were using Southeast Asian nations to circumvent tariffs by shipping products through these countries with only minimal processing. In response, Washington may intensify trade scrutiny and consider broader tariffs on countries seen as conduits for China’s tariff evasion, directly impacting EM Asia’s export-dependent economies.

Chinese Investment and Potential Trade Tensions

Chinese investment in Southeast Asia has surged over recent years, with China’s direct investment in Vietnam, Thailand, and Malaysia rising from $16 billion in 2018 to $37 billion by 2022. In 2023 alone, China pledged $26.4 billion in new projects in ASEAN countries, emphasizing its commitment to strengthening economic ties with the region. However, this growing dependency on Chinese investments makes it harder for EM Asia to remain neutral in the U.S.-China economic conflict. The U.S. may respond with trade penalties on countries benefiting from Chinese investments and enabling China’s tariff avoidance strategies.

Additionally, Southeast Asian countries like Indonesia are already taking steps to protect local industries from an influx of Chinese goods, with Jakarta imposing tariffs as high as 200% on certain Chinese products. EM Asia’s balancing act between the U.S. and China, therefore, grows increasingly complex as countries try to shield their economies from fallout in the ongoing trade war.

Implications for Security and Defense Relations

Beyond trade, a Trump administration could also reconsider U.S. security commitments in Asia, which have traditionally bolstered regional stability. Trump previously raised concerns about the financial contributions of South Korea and Taiwan toward their own defense, which could signal a shift in future U.S. security policy. As U.S. allies, South Korea and Taiwan both maintain substantial trade surpluses with the U.S. and possess industries crucial to the U.S. economy, such as semiconductors in Taiwan and vehicle exports from South Korea.

During his first term, Trump renegotiated the Korea-U.S. Free Trade Agreement (KORUS), accusing South Korea of leveraging U.S. security support without sufficient contributions in return. In July, Trump suggested that Taiwan should compensate the U.S. for military protection, indicating his stance that regional allies should bear more financial responsibility. This stance, if reintroduced, could strain economic and security ties with both South Korea and Taiwan, as well as other EM Asia nations, particularly those with close ties to China.

Canada’s Economic Outlook Amid the 2024 U.S. Presidential Election: Key Implications

As Canada’s largest trade partner, the United States’ trade policies have a profound impact on Canada’s economy, making the outcome of the 2024 U.S. presidential election highly consequential for its northern neighbor. Roughly 75% of Canadian exports head to the U.S., a volume worth about 25% of Canada’s GDP. Consequently, the election outcome may shape economic policies that ripple through Canadian trade, monetary policy, and even political dynamics.

Trade and Tariffs: Canada’s Key Concerns  

If Donald Trump returns to office, Canadian trade may face unique challenges, particularly concerning tariffs. Trump has hinted at a broad, uniform 10% tariff on imports—a policy that, if implemented, could severely impact Canadian exports, which are closely intertwined with U.S. industries. The Business Development Bank of Canada suggests this tariff could reduce Canada’s GDP by 0.3 percentage points, though some analysts believe the true impact could be higher, given Canada’s heavy reliance on U.S. trade.

However, Canada’s membership in the U.S.-Mexico-Canada Agreement (USMCA, or CUSMA in Canada) may provide some insulation from such broad tariffs. Under this trade agreement, Canadian goods might be excluded from the blanket 10% tariff, making them relatively more competitive in the U.S. market compared to other imports. This exemption could even drive demand for Canadian products, particularly if U.S. domestic industries struggle to meet demand quickly. Nevertheless, the USMCA itself is scheduled for renegotiation in 2026. In previous rounds, Canada made concessions on key issues like intellectual property, data storage, and dairy market access, and it could face similar pressures in the next round. While Canada’s trade relationship with the U.S. may remain steady, the renegotiation could be complicated by both Canada’s and the U.S.’s other trade interests, such as those involving Mexico.

Pressure on Defense Spending  

Historically, Trump’s trade policies have extended beyond tariffs, often leveraging trade for other concessions. In the past, he has advocated for U.S. allies, including Canada, to increase defense spending, and this issue could resurface if he’s re-elected. Canada’s defense expenditure has consistently fallen short of NATO’s 2% GDP pledge, remaining closer to 1% over the past 30 years. Although Canada plans to raise defense spending to 1.76% of GDP by 2029, some U.S. policymakers may view this increase as insufficient. Recent bipartisan support from 23 U.S. senators pressing Canada on this matter suggests that, under a Trump administration, Canada could face renewed pressure to increase its defense budget further.

Canadian Energy and Environmental Policies  

The 2024 U.S. election could also impact Canada’s energy sector, especially in areas like electric vehicle (EV) production and oil. Canada has heavily invested in EV battery production, anticipating increased demand from the U.S. spurred by the Inflation Reduction Act (IRA). However, if Trump revisits or modifies the IRA’s policies, Canada’s EV sector could be affected, as reduced U.S. incentives may hinder the anticipated growth of North America’s EV supply chain.

Additionally, a Trump administration could introduce more lenient regulations on the U.S. oil and gas industry, likely leading to increased U.S. oil production. This expansion could place downward pressure on global oil prices, squeezing profit margins for Canadian oil producers. While lower energy prices could have a disinflationary effect in Canada, helping to ease the Bank of Canada’s inflation concerns, the potential impact on Canada’s oil revenues is likely to be mixed.

Immigration Policies and Their Cross-Border Impact  

Immigration policies will also play a significant role in U.S.-Canada relations. Both U.S. candidates are expected to tighten migration policies, but Trump’s plan may include increased deportations, which could indirectly impact Canada. If undocumented migrants in the U.S. seek refuge northward, Canada might face an influx that would challenge its current immigration framework. Canada has been relatively welcoming to immigration, but a surge from the U.S. could strain its system, which is traditionally oriented toward high-skilled, targeted migration. Additionally, if the U.S. policies trigger a legal review of Canada’s safe third-country agreement with the U.S., this could open new avenues for migrants to seek asylum in Canada, further straining its immigration system.

Potential Shifts in Canadian Politics  

The election’s outcome could also influence Canada’s own political landscape. With Canadian Prime Minister Justin Trudeau’s reelection scheduled for October 2025, the political atmosphere in the U.S. may affect the campaign dynamics in Canada. Trudeau’s Liberal Party currently trails the Conservative Party in polls, and he has often compared Conservative leader Pierre Poilievre to Trump in rhetoric. A Trump victory could amplify populist themes within Canada, potentially shifting the political landscape to the right and creating challenges for Trudeau’s campaign, particularly as he negotiates delicate issues with a more assertive U.S. administration.

Indirect Economic Impacts and Canada’s Financial Landscape  

Finally, Canada’s economy could feel indirect effects stemming from shifts in the U.S. economy. If Trump’s policies lead to slowed U.S. growth in 2025 and beyond, as some economists predict, Canada’s export-dependent economy would likely experience a downturn. Additionally, if the Federal Reserve limits policy easing, the Bank of Canada may feel pressure to maintain a relatively restrictive stance to prevent a weakening of the Canadian dollar against the U.S. dollar. This could complicate Canada’s monetary policy and may restrict its room for economic maneuvering.

As Canada navigates the uncertainties associated with its relationship with the U.S., Pierre Trudeau’s famous observation remains relevant: sharing a border with the U.S. is like “sleeping with an elephant;” every movement south of the border has the potential to cause economic ripples in Canada. The election’s outcome will likely shape Canada’s economic trajectory in both direct and indirect ways for the foreseeable future.

Mexico’s Complex Economic Relationship with the U.S.: Navigating Trade, Migration, and Investment Challenges  

The economic ties between the U.S. and Mexico are both strong and complex, heavily influencing trade, immigration, and investment across North America. Mexico accounted for about 16% of U.S. exports in 2023, ranking just behind Canada and comparable to the Eurozone. At the same time, Mexico contributes significantly to the U.S. trade deficit, comprising a quarter of it. This reciprocal reliance, with 83% of Mexican exports going to the U.S., means that any shift in U.S. trade policies could bring substantial economic changes for both countries.

With the 2024 U.S. presidential election approaching, the economic future between the two nations could vary widely depending on the election outcome. Each candidate has a distinct stance on trade, immigration, and other bilateral issues, potentially altering the landscape of the U.S.-Mexico-Canada Agreement (USMCA) and impacting Mexican exports, U.S. imports, and regional manufacturing.

Trade Policies and the USMCA: A Key Post-Election Concern  

Trade relations will likely be one of the primary concerns in the post-election phase. Under the USMCA trade agreement, Mexico is expected to remain exempt from broad U.S. tariffs, which could sustain or even increase demand for Mexican exports if other trade barriers rise. However, tensions exist: U.S. trade deficits with Mexico have doubled in recent years and are nearing the scale of the deficit with China (Exhibit 7).

Additionally, China has invested significantly in Mexican manufacturing, particularly in sectors like electric vehicle (EV) production, aiming to circumvent direct U.S. tariffs. This setup could be jeopardized if tariffs on EVs or other goods produced in Mexico become a reality.

If the U.S. adopts more restrictive trade measures, particularly on items manufactured with significant Chinese investment, Mexico might face increased pressure to alter its trade dynamics. Under a Trump administration, for example, policies targeting imports from China, even if routed through Mexico, could strain the USMCA. The agreement’s renegotiation in 2026 is likely to bring such issues to the forefront, especially as non-market economies like China are under scrutiny in U.S. trade policies.

The Impact of Chinese Investment in Mexico  

The growing Chinese investments in Mexican manufacturing have strategically positioned Mexico as a major supplier to the U.S. market. However, this arrangement also puts Mexico in a delicate position, especially if U.S.-China tensions escalate. The 2022 Inflation Reduction Act (IRA) signaled concerns over “foreign entities of concern,” a term indirectly targeting China without explicit definitions. If the upcoming USMCA renegotiation incorporates similar language, Mexico may be compelled to navigate difficult trade-offs between Chinese investment benefits and compliance with U.S. expectations.

This dynamic extends beyond Mexico, impacting Canada, Mexico’s second-largest trading partner. Any restrictive amendments to the USMCA would also influence Canada, adding another layer of complexity to the trade discussions between North American partners.

Migration Issues and Cross-Border Challenges  

Immigration is another sensitive area that will likely see varying approaches depending on the 2024 election outcome. While both candidates are expected to adopt a more cautious stance on immigration, Trump’s policies might be more stringent, with potential deportations and a revival of the “Remain in Mexico” policy. This approach could strain U.S.-Mexico relations and disrupt the flow of remittances from the U.S. to Mexico, which contributes around 4% of Mexico’s GDP. A reduction in immigration could reduce these remittances, impacting the Mexican economy and potentially extending effects to Latin American countries reliant on funds from the U.S.

On the other hand, Mexico has some leverage in managing migration flows, as better border control could ease the pressure on the U.S. southern border. This leverage may play a role in Mexico’s strategy during negotiations, potentially using its capacity to curb migration as a bargaining chip.

Drug Enforcement Cooperation and U.S.-Mexico Relations  

The drug trade and associated enforcement efforts are a significant flashpoint in U.S.-Mexico relations. Fentanyl, largely trafficked through Mexico, is the leading cause of death among Americans aged 18 to 45. Calls by some U.S. legislators for aggressive measures, including using Special Forces to target Mexican drug labs, have met resistance from Mexico, which in 2020 limited the U.S. Drug Enforcement Agency (DEA)’s operations within its borders. However, in recent years, Mexico has increased its collaboration with the DEA and participated in global anti-trafficking campaigns. This partnership may strengthen further as part of a revised trade agreement, with the U.S. potentially leveraging trade benefits in exchange for Mexico’s enhanced cooperation on anti-drug initiatives.

Judicial Reforms and Investment Concerns  

Recent judicial reforms in Mexico have also raised concerns for future U.S. investment. The reforms, which aim to elect judges, have met resistance from the Mexican judiciary and raised questions among U.S. investors about judicial independence. If perceived as undermining rule of law or stability, these reforms could limit American investment, especially as political and economic shifts following the U.S. election unfold.

Economic Spillovers and Monetary Policy Implications  

The U.S. economic environment, including factors like inflation and monetary policy, will have a pronounced effect on Mexico, which remains highly sensitive to shifts in U.S. economic conditions. Under Trump’s economic policies, inflationary pressures and a strong U.S. dollar could lead Mexico’s central bank, Banxico, to adopt stricter monetary policies to stabilize its economy. Higher interest rates would strain Mexico’s growth, particularly if restrictive conditions in a renegotiated USMCA discourage foreign investment. Conversely, a weaker U.S. dollar and lower inflation could ease Mexico’s policy stance, though slower U.S. growth would still weigh on Mexico’s economic prospects.

Japan: Challenges and Opportunities Under U.S. Trade Policies  

In the context of U.S. trade policies, the 2024 election could significantly impact Japan’s economy and its trading relationship with the U.S. A victory for Kamala Harris would likely maintain a cooperative stance, with stable trade and defense arrangements between the two nations. This continuity would support Japanese economic growth and align with the Bank of Japan’s (BoJ) policies.

However, a Donald Trump presidency would likely introduce more aggressive trade measures, potentially posing challenges to Japan’s export-driven economy. While Japan has negotiated bilateral trade agreements with the U.S. and has reduced some tariffs, these agreements cover only about 5% of Japanese exports, leaving major sectors like the automotive industry at risk for future tariffs. Should Trump reintroduce trade barriers, Japan’s economic growth could suffer, particularly if new tariffs affect core exports such as electronics and vehicles. Japan’s close trading relationship with both China and the U.S., representing about 40% of its exports, makes it vulnerable to any economic slowdowns in these regions. This exposure could result in slower export growth, similar to the period of Trump’s first term, during which Japan’s annual export growth dropped to an average of 0.5%, well below the 5% average of the early 2010s.

Increased defense spending may also be on the horizon for Japan under a Trump administration, as seen during his previous term, when Japan was asked to quadruple its payments for U.S. troop presence. This demand put a strain on Japan’s budget without offering economic growth benefits. Japan may face similar fiscal pressures if required to contribute more to regional security independently, further burdening taxpayers without clear returns to its economy.

If Trump’s policies lead to a more aggressive Federal Reserve, the BoJ may feel pressure to move toward a neutral stance. Yet, a downturn in domestic growth or a more dovish Fed policy in the U.S. could compel the BoJ to consider loosening measures to support Japan’s economy.

Central and Eastern Europe: Navigating U.S. Protectionism and Security Risks  

For Central and Eastern European (CEE) countries, a rise in U.S. protectionism under a Trump presidency could ripple through their economies due to their dependence on trade, especially with the Eurozone. Economies in this region are among the most open globally—Slovakia’s trade (imports and exports) accounts for 175% of its GDP, and Baltic countries see figures ranging between 100% and 120%. Larger CEE economies, like Poland, still maintain a high trade-to-GDP ratio, at over 90%. Although direct exports to the U.S. are limited to around 3%-5%, any impact on the Eurozone from U.S. protectionism could indirectly affect the CEE, influencing the euro and regional economies tied to it.

Beyond economic concerns, a Trump administration would likely reshape security dynamics in the region. Trump’s past criticisms of NATO spending could lead CEE countries, already deeply committed to defense against perceived threats from Russia, to further increase their military spending. Since Russia’s 2014 invasion of Ukraine, defense budgets across the CEE have grown by as much as 270%, with Poland allocating 4% of its GDP to defense and Latvia aiming to reach 3% by 2027. These increases surpass NATO’s 2% spending guideline, a threshold Trump previously suggested would ensure U.S. support against external threats.

However, Trump’s alignment with populist leaders in Hungary and Slovakia, who often lean pro-Moscow, could create new challenges within the EU, affecting cohesion on both defense and foreign policy. Furthermore, CEE economies often act as gateways for Chinese investments into Europe, a factor that could strain trade relations not only with the EU but also with the U.S., especially under Trump’s protectionist policies.

Final Thoughts

In the lead-up to the 2024 U.S. presidential election, the stakes for both domestic and global economies are high, with contrasting visions from Kamala Harris and Donald Trump promising distinct impacts. A Harris victory could bring continuity and a focus on sustainable economic growth, bolstered by investments in infrastructure, education, and green energy. In contrast, a Trump administration may emphasize aggressive trade policies, particularly toward China and the European Union, potentially igniting new trade tensions. This divergence extends beyond economics, affecting foreign relations, defense alliances, and environmental commitments, with significant implications for allies and trading partners across Europe, Asia, and North America.

Ultimately, this election encapsulates not only a choice between policy paths but a pivotal moment for global economic and political alignment. The outcome will shape economic priorities, redefine alliances, and set the tone for the next decade of U.S. engagement with the world. As the world watches, businesses, governments, and individuals alike will need to prepare for whichever path unfolds, understanding that each carries its own set of opportunities and challenges. The 2024 election will undoubtedly leave a lasting imprint on the global economic landscape.

References:

Reuters
World Economic Forum
Economist Intelligence Unit
US Bank
CEPR
Bloomberg
AXA Investment Managers