Trump vs. Harris: How Tariff Policy Affects Your Portfolio

Tariffs have been a topic of political economic conversation throughout the 2024 presidential election.

Although former President Donald Trump and Vice President Kamala Harris are pushing different campaign proposals, the Republican and Democratic parties have used tariffs in recent years to try to protect U.S. manufacturers from competition from China and other countries.

Although tariffs are intended to protect domestic companies, research and studies show that fiscal policy often results in higher prices for consumers. The impact (and potential impact) of tariffs on the stock market is less clear.

So, what are tariffs and how do they affect your daily life and investments?

Here’s everything you need to know about Trump and Harris’ positions on tariffs and how their proposals could affect your investment.

How do rates work?

A tariff is a tax levied on imported goods. Tariffs are used to stabilize prices or reduce imports to support domestic businesses that compete with companies abroad.

“Some industries benefit and others lose from any tariff change, up or down,” says Alan Deardorff, a professor of public policy and economics at the University of Michigan.

Tariffs are often lower for countries with trade agreements with the US, such as Canada, and higher for countries with strained relations with the US, such as China.

In general, most economists don’t think tariffs are a great way for governments to make money or stimulate the economy. They often argue that tariffs can be ineffective and lead to higher prices for consumers.

“The higher price of imported goods leads to a similar increase in the price of comparable domestic goods,” Deardorff says. “So American buyers pay more for a product, whether it is imported or not.”

Case in point: After the washing machine tariff was introduced in 2018, prices for washing machines—both imported and domestic—rose by about 12%, according to a study by University of Chicago researchers. Dryers that were not subject to the tariff went up in price by about the same amount. Overall, the tariff increased consumer costs by about $1.5 billion annually.

When tariffs are imposed, businesses have two options: stop importing products or raise the price. If they can’t find a cheaper alternative in the U.S., companies often pass on the cost of the tariff to consumers.

So while tariffs may help some domestic businesses, they could hurt others and raise prices for everyday people.

Trump’s position on tariffs

Trump has been a strong supporter of tariffs since the 1980s, and protectionist policies played a major role in his first term. Trump has also discussed tariffs at length during his current campaign for the White House.

Specifically, Trump is calling for blanket tariffs of 10% to 20% on all foreign goods and tariffs of 60% or higher on imports from China in particular.

In September, Trump also proposed a 100 percent tariff on imports of goods from Mexico, which could derail a trade agreement his own administration worked out with Mexico and Canada.

Several prominent economists have spoken out against Trump’s proposed tariffs. In October, US Treasury Secretary Janet Yellen warned of the negative impact of high tariffs on the economy in a speech to the Council on Foreign Relations.

“Sharp, untargeted tariffs will raise prices for American families and make our businesses less competitive,” Yellen said.

Trump has imposed several rounds of tariffs during his presidency, most famously on Chinese goods during the trade war. He also imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum, hitting imports from Europe, Canada, Mexico and other regions. Canadian lumber was also taxed, pushing up prices domestically, along with other products such as solar panels and washing machines.

Trump’s adamant support for tariffs is somewhat unusual for a Republican politician, Deardorff said. The professor notes that since at least World War II, Republicans have tended to favor freer trade because they support business, while Democrats have tended to favor protectionist policies because they support labor.

“Trump somehow managed to change the minds of a lot of Republicans (on tariffs), although I never understood why,” Deardorff says.

Deardorff notes that presidents of both parties saw the benefits of lowering tariffs through negotiations that forced other countries to lower their tariffs as well, such as the bipartisan passage of the North American Free Trade Agreement (NAFTA) in 1993.

“The only thing that seems to have really changed is the election of Donald Trump,” Deardorff says.

According to The Tax Foundation, between 2017 and 2020, the average import tariff doubled from 1.4% to 2.8%, and for goods subject to special tariffs, rates increased from 4.7% to 8. ,9%.

The stock market peaked during the Trump presidency in January 2018, just as Trump announced tariffs on Chinese products.

Harris’ position on tariffs

Democrats also support tariffs. President Joe Biden’s administration has largely maintained Trump-era tariffs on a variety of Chinese imports, including solar cells, semiconductors and advanced batteries.

In May, the Biden administration increased the tariff rate on electric vehicles imported from China from 25% to 100%. Biden also maintained or increased tariff rates on Chinese steel and aluminum products and medical supplies.

Biden has backed away from some tariffs affecting U.S. allies, including his decision in 2021 to suspend tariffs on the European Union for five years.

But as Deardorff notes, Biden has replaced tariffs on steel and aluminum with so-called tariff quotas, which “probably still provide protection, but without tariff revenue from the U.S. government.”

Harris has not outlined any specific changes she would make to the current rate structure if elected, although she is widely expected to pursue similar policies. Harris criticized Trump’s tariff plans, calling them a “sales tax on the American people” in an interview with MSNBC and saying they would increase household spending by $4,000 a year.

Overall, the S&P 500 and Dow Jones were higher during Biden’s presidency than their peaks under Trump. This is typical of these indexes – they tend to rise over time and have risen during the Trump presidency, but not as high.

The S&P 500 appears to have been unscathed by Biden’s decision on May 14, 2024, to extend many of Trump’s tariffs and impose new ones. From May 14 to October 21, the S&P 500 gained 11.6%.

How much could the proposed tariffs raise prices?

The impact of tariffs on American families varies depending on which economist or analyst you ask.

Trump’s biggest tariff proposals would cost the average American about $2,600 a year, according to an August study from the Peterson School of International Economics.

Meanwhile, a 10% global tariff and a 60% tariff on Chinese goods would cost Americans an average of $1,800 in 2025, according to an August analysis from the Tax Policy Center.

How tariffs could affect your investment

A tariff on all imported goods could cause U.S. stocks to fall about 10% and lower bond yields, according to one analysis published by UBS Wealth Management in May.

Barclays analysts estimate the S&P 500 could fall 4.7% next year if Trump’s proposed tariffs – 10% on all goods and 60% on goods from China – take effect.

However, the impact of tariffs on the US stock market will not be uniform, with some industries and sectors being hit more than others. Retailers, automakers, technology equipment and semiconductor makers will feel the brunt of the tariff war, according to UBS analysis. Barclays points to likely impacts on the technology, healthcare, industrials, materials and consumer goods markets.

The researchers also noted that stock markets in other countries, especially those linked to trade and economic cycles, are likely to be hit the hardest.

But in reality, it’s difficult to determine the exact impact of higher tariffs on stocks and other investments, in part because tariffs don’t occur in a vacuum. Other economic factors, including interest rates, inflation, general volatility and the strength of the US dollar, also influence the market, as the UBS report acknowledges.

“Changes in consumer and corporate behavior, as well as currency fluctuations due to tariffs, will be important factors in the ultimate size of the decline in U.S. equities,” the report noted.

Overall, higher tariffs will pose challenges for international stocks that rely on exports to the U.S., especially Chinese stocks.

Americans’ investment in industries such as manufacturing, technology and agriculture – sectors that rely heavily on global trade – could also feel the pressure.

“It depends on what products the tariffs are on,” Deardorff says. “And whether new US tariffs will prompt retaliation from other countries.”

However, it’s still unclear how much the tariffs will actually impact the U.S. stock market for average investors. An analysis by Charles Schwab in July 2024 found little impact on stocks following the introduction of tariffs in 2018 and 2019 during Trump’s first term.

Interestingly, companies that operate more domestically did not outperform companies with significant international sales, the analysis found.

In fact, an index of S&P 500 companies with higher international sales performed better in 2018 and 2019 than an index of companies with lower international sales. This suggests that avoiding stocks that are more susceptible to trade wars is probably not a winning investment strategy.

Bottom line

Tariffs are a complex economic tool that can affect everything from household spending to international inventories. Although they are intended to protect domestic businesses, the effectiveness of tariffs can be uneven and unpredictable.

For the average investor, radically changing their portfolio in response to tariffs doesn’t make much sense. Rather than reacting to geopolitical tensions and threats, taking a long-term approach that aligns with your financial goals and risk tolerance offers a more sustainable path to growing wealth.