If Trump Wins, Exchange Rates Rise; Harris Lowers Them [2024 US Election]

Significant Impact on Forex Market Following US Presidential Election Results
Strong Protectionism Under Trump Election Increases Pressure for Dollar Strength
Harris, Continuing Biden's Policies, Raises Less Concern Over Dollar Strength

As the U.S. presidential election approaches, interest is growing in the impact the election results will have on our foreign exchange market. The market expects that if former President Donald Trump wins the election, the U.S. dollar will strengthen further, whereas if Vice President Kamala Harris is elected, the dollar will show relative weakness.

Trump Expected to Strengthen Dollar through Intensified Protectionism

During the election period, Trump consistently expressed dissatisfaction with the strong dollar. He stated in campaign rallies and media interviews that the strong dollar makes American products expensive and increases the trade deficit, and that he would promote a weaker dollar after being elected president.

Despite these claims by former President Trump, the market sees a low possibility of the dollar weakening after his election. Most of Trump's major economic pledges involve strengthening U.S. protectionism, which is a factor that encourages dollar strength. Strengthening protectionism leads to rising prices domestically in the U.S., and rising prices increase the likelihood of the Federal Reserve delaying interest rate cuts and adopting a tight monetary policy, which in turn supports a strong dollar.

In fact, when former President Trump's approval ratings recently surpassed those of Vice President Harris, a global dollar strength phenomenon occurred. As a result, the won-dollar exchange rate, which had fallen to the low 1300 won range, surged to the 1380 won level.

[Image source=Yonhap News]

This is because the foundation of Trump's campaign pledges is America First. Former President Trump stated that if elected, he would impose a 60% tariff on Chinese goods as well as a general tariff of 10-20% on all imports. He criticized European automakers including Mercedes-Benz and claimed that high tariffs on imported cars are the only way to bring manufacturers back to the U.S. Most of Trump's major pledges, such as protectionism, tariff increases, tax cuts leading to fiscal deficits, and checks on China, are considered factors that strengthen the dollar.

The UK Financial Times (FT) analyzed that "If former President Trump is elected, plans to devalue the dollar are likely to fail due to tariff increases and tax cut policies."

After Trump's election in 2016, the dollar strengthened. Within two months after his November 2016 election, the dollar value surged about 6%. Similarly, if Trump is elected this time, the dollar is expected to strengthen in the short term and the won-dollar exchange rate may rise.

Sanghyun Park, a senior researcher at Hi Investment & Securities, observed, "Trump's tariff policies could act as pressures for price increases and dollar strength," adding, "Strong immigration restrictions could also accelerate the supply-demand imbalance in the U.S. labor market, which is gradually stabilizing, leading to inflationary pressures."

Possibility of Dollar Weakness if Harris is Elected

Unlike former President Trump, Vice President Harris opposes comprehensive tariffs on imports but is expected to pursue targeted tariffs on key items such as Chinese steel and aluminum. Harris has proposed a 'De-Risking' strategy to maintain economic cooperation with China while reducing excessive economic dependence to lower risk factors.

[Image source=Yonhap News]

Since price stability and middle-class support are major goals of Harris's economic policy, she is expected to implement policies requiring companies to lower prices to prevent inflation. She has stated that regulations will be established to reduce prices for companies that unfairly raise product prices, and penalties will be imposed on companies that do not comply. She has also announced plans to raise the corporate tax rate from the current 21% to 28%, which would be a burden for companies.

The Korea Institute of Finance evaluated Harris's pledges as contrasting with Trump's policy direction of supporting companies through additional tariffs, and also as a challenge for companies. The biggest difference between Harris's and Trump's policies in the foreign exchange market is uncertainty. Experts believe that since Vice President Harris has less policy uncertainty compared to former President Trump, the impact on the foreign exchange market will also be smaller.

An official from the Bank of Korea explained, "Policy uncertainty increases if former President Trump is elected, which raises the burden on our foreign exchange market," adding, "The recent strengthening of the won-dollar exchange rate also reflects this uncertainty."