US Elections: Past and Future Trade War Threats

Trade wars are an important policy front for the US and its Presidents over the past few decades. Policies aimed at bolstering national security and industries through trade have been commonplace through past administrations, but tactics have differed. We discuss what approaches might a Harris or Trump administration take over the next four years on trade.

As election day nears, traders await to see which candidate will win the role as the US President for the next four years and what policies the victor will enact. One area of particular importance for both Americans and global observers is the plans from Donald Trump and Kamala Harris on foreign policy and how it might affect global financial markets.

Here we review recent trade war actions, tariffs, and trade deficits under Presidents Obama, Trump and Biden along with how those relationships might change over the next four years under either major party candidate.

Jump to a specific section with the links below:

1. What is a Trade War
2. Importance of Trade Policies
3. US Trade Deficit
4. Import Tariffs and Unfair Trade Practices
5. US-China Trade War
6. Ukraine and Russia Sanctions
7. Obama Administration
8. Trump Administration
9. Biden Administration
10. Trade Policy in a Possible Second Trump Administration
11. Trade Policy in a Possible Harris Administration
12. Disclaimer

What is a Trade War

A trade war is when two countries impose tariffs and sanctions on each other repeatedly, going back and forth in this manner as each country falls into a retaliatory pattern against one another. Historically, trade wars have been instigated as a way to protect domestic industries, respond to unfair trade practices, or as retaliation for geopolitical conflicts. These retaliatory tariffs and sanctions are often referenced during US Presidential elections as a way for candidates to appear tough on foreign economic competition and supportive of American businesses.

Importance of Trade Policies

Trade policies shape the international economic landscape and play a large factor in determining a country's GDP and currency strength. They do so by determining the supply and demand of goods and services across borders with one's trading partners. Federal government policies on international trade can further affect the price of consumer goods and employment rates across industries such as agriculture and manufacturing.

Trade negotiations and proposed tariffs are handled by the Office of the United States Trade Representative (USTR). While the President plays a visible role in trade talks with other world leaders, the USTR is the federal agency responsible for developing and promoting trade policies that support American businesses in conjunction with the current administration's foreign policy.

US Trade Deficit

The US reported a trade deficit of $73 billion at the end of June 2024, down from $63 billion in June of 2023. Some of the largest factors to the trade deficit are large imports of oil, manufacturing materials, and consumer goods and electronics from countries like Canada, Mexico, China, and Japan. Trade deficits are considered harmful by many economists because they bolster employment and GDP growth for other countries at the expense of domestic jobs and economic growth.

A US trade deficit can weaken the strength of the US dollar because it decreases the global demand for the dollar, since international consumers are using the currency less to purchase American-produced goods and services. This is a simplified concept of supply and demand factors on the forex market, but the impact of a negative balance of trade can be seen in other economic indicators like GDP and PPP, all of which degrade the dollar's strength.

Trade deficits can have a negative or positive effect on a country depending on the context of its economic trajectory. The US ran a trade deficit for most of the nineteenth century as it eventually became the world's largest economy in 1890. However, the US is in a different position now, and its enormous trade deficit with China has seen the trade partner grow to the second-largest economy and in turn became a policy concern for US presidential administrations for decades.

As far back as the Bush and Obama administrations, China's booming economy has been viewed as a challenge to American economic and geopolitical dominance. Imposing tariffs has been a hot topic and key tool for every administration's foreign policy when it comes to handling the trade deficit with China.

Another significant trade deficit involves the North American Free Trade Agreement (NAFTA), which reduces or eliminates tariffs on imports and exports between the US, Canada, and Mexico. The US trade deficit with its bordering neighbors has increased from $85 billion in 2017 to $220 billion in 2023, according to the US Commerce Department.

Import Tariffs and Unfair Trade Practices

Import tariffs are frequently justified by Presidents by calling foreign imports a threat to national security or blaming other countries of unfair trade practices. The latter is often levied against China with US Presidents frequently accusing the country of subsidizing manufacturers of electronics and metals.

Accusations of unfair trade practices against China include forced labor, intellectual property theft, and artificially deflating prices through subsidies to the degree that American consumers can import foreign goods of similar quality and at a lower price than competing products produced domestically.

President Biden, and President Trump before him, have partaken in similar measures to bolster US production of electronics like EVs and semiconductors. The CHIPS and Science Act passed by President Biden produced significant subsidies for domestic manufacturing of microprocessors. Biden also increased Trump's tariffs imposed on Chinese-produced electronics.

These tariffs are thought to protect national security concerns by protecting the American economy and ensuring the US remains a global technological superpower. Export tariffs can also be imposed to restrict the sale of domestic technologies and information to foreign entities, reducing the possibility of intellectual property theft.

Many economists argue that the cost of tariffs is passed on to consumers, who suffer when exports raise prices in response to tariffs. Sellers can also lose out when they become priced out of foreign markets due to retaliatory tariffs imposed during a trade war.

US-China Trade War

The US-China trade war has become one of the more prominent foreign policy issues in the US Presidential Election. The US has held a bilateral trade deficit with China for decades, with the US importing huge quantities of cheaper consumer goods and electronic appliances from China.

As China grew into the world's second-largest economy, many US government officials have come to view China as a challenge to America's national security and economic dominance especially amid intellectual property theft and uncompetitive subsidy accusations.

President Trump took aim at China and escalated the trade war in 2018 with his protectionist economic platform. Trade protectionism is an economic policy stance of restricting imports from other countries through methods like tariffs in hopes of reducing foreign competition for domestic businesses and workers while also raising government revenue by increasing GDP.

The Trump administration increased the number of tariffs on Chinese imports including solar panels, washing machines, medical devices, televisions, aircraft parts, batteries, and steel and aluminum. The immediate blowback of these tariffs imposed were seen in stock prices. The Dow Jones Industrial Average fell 2.9% the day following their announcement in March 2018 due to concerns over a net decline in growth, and large losses were seen particularly in stocks of Chinese trading partners like Caterpillar Inc. and Boeing.

Through the subsequent months, both Trump and Chinese President Xi Jinping imposed tariffs against each other's countries in a tit-for-tat manner as US-China relations worsened. US tariffs were eventually levied against thousands of products, and China placed its own tariffs on US exports like automobiles, airplanes, and soybeans--some of the top US exports to China.

Ukraine and Russia Sanctions

Following Russia's invasion of Ukraine in February 2022, many European and North American countries imposed strict sanctions on Russia. These sanctions were intended to weaken Russia's economy and its ability to wage war on Ukraine. However, Russia was previously a significant exporter in energy and agricultural supply chains. Ceasing all trade with the country meant hindering those industries at home.

The Russian ruble also tumbled in value, with international banks freezing their holdings and many foreign exchange brokerages dropping the currency from their trade offerings.

Russia and Ukraine together made up more than one-third of the world's wheat supply chain; the war has since exacerbated global food insecurity. Energy costs in European countries that relied on Russia for significant parts of their natural gas and oil supply chains also skyrocketed in the year following the invasion. However, these blows to European economies meant the US dollar grew slightly stronger in response as the US increased energy exports to countries no longer buying from Russia.

Now that we've covered some key past/current trade wars and economic policy tools, the next section breaks down recent US Presidential administrations and how prominent trade wars, tariffs, and sanctions evolved over the past two decades.

Obama Administration

The Obama administration focused on multilateral trade agreements, such as the Trans-Pacific Partnership, to counteract the growing economic power of China. However, a Republican-led Congress opposed the approach, and Obama's Asia-Pacific policies were not ratified by the US.

Obama did impose some tariffs on Chinese imports, including tires, steel, and aluminum tariffs to support domestic production. Tensions with China would continue to rise, setting the stage for the Trump administration's much more aggressive tariffs.

Trump Administration

President Donald Trump had long advocated for a more aggressive approach to trade negotiations with China. During his term he imposed tariffs on hundreds of billions of dollars' worth of Chinese goods, leading to a full-out trade war. This created significant volatility across currency markets, as each new round of tariffs and sanctions influenced market sentiment for the US dollar and its many counterparts.

The administration’s focus on reducing the trade deficit and protecting American jobs through tariffs created short-term opportunities for currency traders but also introduced long-term risks as global trade relationships became strained and American businesses and consumers suffered from breakdowns across markets.

Many economists have declared the US-China trade war tariffs a failure, as the import of consumer goods from China into the US simply rerouted through Southeast Asian countries like Thailand, Vietnam, and Cambodia to avoid the tariffs while popular US exports to China like soybeans still decreased.

Biden Administration

Upon assuming office in 2020, President Joe Biden maintained most of the tariffs and sanctions imposed by President Trump. Biden has merged this tough-on-trade strategy with Obama's approach of multi-lateral agreements in an effort to strengthen alliances with European and Asian partners in another attempt to weaken China’s hold on global trade dominance.

President Biden even increased some Chinese tariffs while creating subsidies for highly competitive industries like semiconductors with the CHIPS and Science Act, providing subsidies for American semiconductor producers and other companies along the tech supply chain such as data centers and research outlets. Tech industries like semiconductors, EVs, and renewables are heavily subsidized in China as well, which can pose an offsetting force in the US-China trade war.

President Biden also joined many European countries in imposing sanctions against Russia on dozens of companies and individuals connected to the Russian war machine.

Trade Policy in a Possible Second Trump Administration

President Trump has been outspoken about his plan to pick up on his former policies and raise tariffs on Chinese imports, proposing a raise of 60%-100% if elected. Trump campaign advisors have stated he would also consider raising duties on all imports while cutting business taxes, like he did in 2017, in an attempt to rebuild US manufacturing and create more jobs. Some economists are split on whether this strategy would work, or whether the dual action of raising duties and cutting business taxes would counter each other and ultimately leave the trade deficit unchanged.

Both President Trump and his Vice President nominee JD Vance have spoken about brokering a peace deal between Russia and Ukraine by encouraging the latter to cede territory to Russia. Trump was also hesitant to impose sanctions on Russia during his first term, and if reelected he could possibly be more conciliatory towards Russian President Vladimir Putin.

Trade Policy in a Possible Harris Administration

With President Biden’s dropping out of the running as the incumbent candidate to a second term, his Vice President Kamala Harris rose up to accept the reigns as the Democratic candidate in the 2024 election. Harris, along with Trump, has focused more on domestic economic policy as most voters list items like rising prices and tax cuts as their highest priorities when considering candidates. Currently, what foreign policy the Harris campaign has published focuses on renewing and extending Biden policies from the past four years - like the steady tariff increase on Chinese-produced semiconductors.

Further, the Harris foreign trade plan emphasizes strengthening alliances in the Indo-Pacific region to counterbalance Chinese growth, "de-risking" economic ties with China and supporting Ukraine in the war against Russia.