Kamala Harris “won’t end US protectionism if Donald Trump is defeated”

© Sarah Rice/Bloomberg via Getty Images

– Kamala Harris

The US presidential election is fast approaching. In the event of victory, Donald Trump will continue the protectionist policy he put in place from 2017. He makes no secret of this. But it would be wrong to believe that a victory for Kamala Harris implies a step backwards on the subject. The reality in Washington is that the two major parties of the American political spectrum agree on the principle of protectionism. However, they differ on its implementation. Explanations…

The Biden administration has not reversed the protectionist measures taken against China. Worse, it reinforced this approach. About a third of the world’s countries are currently subject to protectionist measures and economic sanctions from the United States. This even rises to 60% for low-income countries. It’s a record. This happened under a Democratic administration – not Republicans.

Kamala Harris officially advocates balanced free trade, but the reality is different

Officially, Kamala Harris advocates balanced free trade. During her vice-presidency, she even repeatedly displayed her closeness to the Director of the World Trade Organization (WTO) and her desire to work with the institution. Ironically, the United States is now blocking the appointment of judges to the dispute settlement body, which is responsible for ensuring that free trade rules are respected. By doing so, they prevent the proper functioning of the WTO. If she is elected, what will Kamala Harris’ policy be in terms of free trade? Even if the means of implementing protectionism differ between Republicans and Democrats, the result is the same: whether with Kamala Harris or Donald Trump, American protectionism has a bright future ahead of it.

Protectionism soft from the United States

A point on the method: the Democrats make little use of tariff barriers. According to our estimates, the targeted increase in customs tariffs advocated by candidate Joe Biden (25% for vehicle batteries, 100% on electric vehicles, 50% on semiconductors, 25% on medical gloves, etc.) and which has since been taken up by Kamala Harris in her economic program, would have a marginal effect on Chinese GDP. Conversely, the 60% increase proposed by Trump could lead to a drop in Chinese GDP of 1.4%. It’s massive. It is even devastating from an economic point of view. This does not mean that Democrats are less firm or less willing to go to war with China. They’re more subtle, actually.

The protectionism put in place by the Democrats is based on high entry barriers for foreign companies wishing to access American public markets – this is a consistency which greatly penalizes European companies – and on the excessive subsidization of policies of reindustrialization, such asIRA (energy transition and support for businesses in the face of inflation) and the Chips Act (semiconductors). They have sometimes financed up to 100% of the relocation of activities on American soil and the resulting manufacturing jobs, which has had the effect of widening the public deficit to close to 5% of GDP. Under WTO rules, this is unfair competition. But that’s exactly what China, for example, is doing.

The European Union is paying the price for its mistakes

On the other hand, it is the complete opposite of the European approach. The European recovery and reindustrialization plans are failing because we are giving in to lobbies of all kinds and deciding to finance a wide range of sectors of activity when we should focus on one or two strategic sectors which can be drivers of innovation and productivity. Another weakness: we release funds in stages, over several years, with a lot of bureaucracy along the way, and the public sector (the State) actually makes little money available. European reindustrialization and competitiveness plans, such as Next Generation EU launched after Covid or the Juncker plan in 2015, fail because of excessive leverage. When the public sector puts a euro on the table, it hopes that the private sector will put 7 euros or even 10 euros. It rarely works that way.

What impact for European businesses if Kamala Harris wins? What if Donald Trump wins?

For European businesses, a Harris administration would not be better news than a Trump administration. We might even venture to consider that Trump’s transactional approach is easier to manage. He threatens tariffs to obtain economic concessions. It’s simple. This is also why the Chinese authorities feel comfortable at the prospect of a new Trump presidency.

With a Harris administration, Europe will still officially be a privileged partner. In reality, the policy of subsidizing jobs and energy led by Biden will continue. It will increase European deindustrialization – factory closures have been increasing in recent months. Many European companies will have no other choice to survive than to relocate their activity across the Atlantic, as is the case with the wind and solar sector.

The possibility of a return of Trump has caused cold sweats among Europeans. It was an electric shock. They became aware of the need to reduce strategic dependence on the United States. Our fear is that all this will fall apart if Kamala Harris is elected. Europeans still have this belief that Democrats are more receptive to European interests than Republicans. In reality, it is America first for both parties.