With Democratic President Joe Biden’s decision in July 2024 to withdraw from the election race, the U.S. presidential election, which had seemed to favor Republican candidate Donald Trump, has entered a strikingly new phase. President Biden’s hand-picked successor, Vice President Kamala Harris, has amassed unexpected levels of support and currently leads Trump in nationwide polling. The two candidates are hotly contesting the seven battleground states expected to decide the election’s outcome, with polls putting them neck and neck (Table 1). Financial markets, however, have shown little reaction to campaign developments, either when Trump’s victory seemed assured in the wake of the July assassination attempt, or after Harris’ dramatic emergence. It seems the markets are struggling to measure how the results of the election will affect the economy.

Harris’ strategy draws heavily on her background

On August 22, Harris delivered a speech to the Democratic National Convention accepting her party’s presidential nomination. In that speech, she adopted a strategy that made a strong appeal for her policies by drawing heavily on her personal background, including her youth, her gender, her status as a child of immigrants, her middle-class upbringing, and her experience battling major corporations as a public prosecutor.
Harris also unveiled her economic plan on August 16 (Table 2), introducing a policy that rests on two pillars: supporting the middle class and combating inflation. Her announcement, however, was narrowly focused only on certain areas of economic policy, and made no mention, for example, of energy, tax, or trade policies.
Looking ahead, Harris appears likely to adopt a strategy that will spotlight her differences from Trump while focusing narrowly on the three issues of 1) inflation policy, 2) support for the middle class, and 3) abortion and other women’s rights issues. In her debate with Trump, Harris limited her remarks to her areas of strength, sketching out vague pathways while saying nothing noteworthy in areas where she is less adept. This posture could be an effective electoral strategy for Harris, whose experience is especially lacking in the areas of foreign policy and national security.

Will Harris’ progressive economic policies become reality?

Harris’ economic plan, which seeks to crack down on big corporations engaged in price gouging, is a progressive policy package that has aroused concern among corporations and in the stock market. These proposals appear to be a response to the public belief that corporations raise prices beyond the scale of their cost increases to grow their own profits, intensifying the burden on consumers in a phenomenon known as “greedflation”.
In reality, however, it is quite hard to make a strict determination of whether a company’s prices are legitimate or illegitimate. Also, Harris’ policies, which presuppose the enactment of new laws, require approval in Congress and cannot be decided through presidential authority alone. The Democratic Party will likely have a hard time passing such laws if it fails to win substantial majorities in both the House and Senate in the congressional elections held alongside the presidential race, and according to current polls, the House and Senate both favor Republicans by narrow margins.
Given all this, the progressive policies proposed by Harris do not seem especially feasible and could end up as no more than campaign promises. Vice President Harris’ progressive positions may not warrant the intense concern they have aroused in boardrooms and on trading floors.

Trump’s tariffs present immeasurable risks to the global economy

Donald Trump, on the other hand, has proposed a policy of protecting U.S. domestic production by raising additional tariffs of 20% on imports from all countries and of more than 60% on imports from China. He also has proposed a weak-dollar policy, similarly aimed at protecting domestic production. While the previous Trump administration also introduced tariffs and proposed weak-dollar policies, these did not clearly undermine the U.S. or global economies or significantly weaken the dollar. Financial markets remember this, which is why they do not seem especially alarmed about Trump’s economic plans. You might say they are “Trump-proof”.
These new tariffs, however, differ markedly in scale from Trump’s previous ones. The tariffs previously introduced by Trump have remained largely in place under the Biden administration, with the result that average tariff rates are currently around 11% on imports from China and around 1% on imports from other countries.
In contrast, Trump’s current proposal would impose additional tariffs not on imports in certain sectors like his previous policy, but on all imports across the board. Implementing this policy could raise average tariff rates to many times their current levels, causing major damage to global trade and the economy.
Also, the global economy and the financial market environment differ markedly from the conditions instigated by the Trump administration eight years ago in another way that must not be forgotten: China’s economy is currently at a standstill, and the global economy is more vulnerable than previously. Likewise, the substantial rate increases by the Federal Reserve Board have had the effect of significantly revaluing the dollar, which means that there is a far greater risk of a major drop in the dollar over the next four years (Table 3).
Finally, it is important to note that the introduction of additional tariffs can be accomplished through presidential authority under U.S. trade law (Table 4). The tariffs Trump would impose after winning back the presidency’s vast powers present such monumental risks to the global economy that their potential impact is scarcely measurable.

Is the emergence of a Harris administration the better scenario for Japan?

Under a Harris administration, which fundamentally would continue the policies of the Biden administration, Japan’s economy and financial environment would be unlikely to experience major changes. In addition, inflation is steadily declining in the U.S., and a Harris administration intent on lowering prices might help reinforce that trend. Under such conditions, the Fed would gradually lower the policy interest rate, which could be expected to weaken the dollar and strengthen the yen over time. A gradually rising yen would calm Japanese concerns about rising domestic consumer prices and put wind in the sails of Japan’s lagging personal consumption.
In contrast, Trump’s reelection would increase the risk of additional tariffs undermining the U.S. economy, while also heightening the risk of the dollar’s decline being accelerated by weak-dollar policies. In such a case, the rapidly rising yen would have significant adverse effects on the Japanese economy, accompanied by a drop in stock prices.
Given these differences, it seems clear that the emergence of a Harris administration, with its attendant gradual rise in the yen, is the better scenario for Japan’s economy and its companies.