[New York Diary] The Loser in the November U.S. Presidential Election Will Be 'the Economy'

Price controls on groceries, rent, and pharmaceuticals. These are the economic pledges put forward by Kamala Harris, the U.S. Democratic presidential candidate and Vice President. The keyword running through Harris's economic agenda, which she calls the "opportunity economy," is market intervention and increased regulation. As voter dissatisfaction with inflation grows, Harris has proposed enacting federal laws to ban price gouging on groceries. She also plans to introduce measures to strengthen regulations on mergers and acquisitions (M&A) among large food companies to promote competition in the grocery market.

Price controls will apply not only to groceries but also to pharmaceuticals and the housing rental market. Harris intends to expand the insulin price cap and prescription drug out-of-pocket limits, introduced by the Joe Biden administration for seniors, to cover all Americans. She has also announced plans to forgive medical debt for millions of Americans. There is no shortage of "giveaway pledges." While it remains uncertain whether these promises can soothe voters' frustrations over the soaring inflation under the Biden administration, these populist pledges completely depart from basic economic principles.

[Image source=Yonhap News]

That said, one cannot simply watch with relief the economic pledges of Donald Trump, the Republican presidential candidate and former president. Trump has announced market-friendly policies such as corporate tax cuts and deregulation of oil and gas. However, concerns are already growing that if Trump is elected, the U.S. economy could fall into the quagmire of inflation and recession. The biggest worry is tariffs. Trump has promised to impose a universal tariff of 10-20 percentage points on all imports worldwide and a blanket 60 percentage point tariff on Chinese goods. Tariff hikes lead to higher import prices, which are likely to fuel inflation. Immigration restriction policies are also likely to reduce labor supply, causing wage increases and a rebound in inflation.

The global credit rating agency Moody's has forecast that if Trump wins the election and the Republicans control Congress, the U.S. inflation rate will rise from 3% this year to 3.6% next year. This could trigger the Federal Reserve (Fed), the U.S. central bank, to raise interest rates again. The scenario of rising inflation leading to further tightening and a possible U.S. recession is being discussed. Even the market-friendly pledges such as corporate and income tax cuts could increase deficit bond issuance, pushing interest rates higher. The fiscal arms race, with Harris and Trump each promising tax exemptions on tips and expanded child tax credits, adds to these concerns. Additional tightening due to rising interest rates could lead to reduced consumption and investment, causing a recession and potentially dealing a severe blow to the global economy.

The U.S. presidential race, now confirmed as a showdown between Harris and Trump following President Biden's decision not to seek re-election, is expected to be a close contest and is becoming increasingly exciting. Although Harris is gaining in the polls, a tight race is expected in the battleground states that will decide the election outcome, making it difficult to predict the winner and loser. One thing is clear: judging by the candidates' pledges, it seems unlikely that there will be a winner when it comes to the economy. U.S. media point out that economists are not deeply involved in either candidate's campaign. The Wall Street Journal (WSJ), a leading U.S. economic daily, commented on this situation, saying, "It is too early to predict the winner of the November election, but it is not too early to predict the loser," identifying "the economy" as that loser. Both Harris and Trump emphasize their economic pledges, but these are likely to become harmful populist promises that will hold back the U.S. economy. What both candidates need most right now might be Bill Clinton's 1992 campaign slogan: "It's the economy, stupid!"