Whether it’s Harris or Trump, populist policies could affect your wallet

Kamala Harris used her acceptance speech at the Democratic National Convention Thursday night to draw a sharp contrast with her Republican rival in the presidential race. Yet Ms. Harris and Donald Trump have something important in common: a populist streak on economic policy. 

Both major candidates have made populist appeals in recent days, arguing that to protect average Americans, powerful interests must be confronted. 

Former President Trump’s solution includes higher tariffs on trading partners that take advantage of the United States. Democratic nominee Ms. Harris’ solution is specific steps to address middle-class living costs through a higher child tax credit, down payment assistance for first-time homebuyers, and a “first-ever federal ban” on grocery price gouging. It’s that ban that’s caused the most uproar in recent days.

In her televised speech from the convention, she didn’t resolve confusion over whether her proposal might open the door to some form of price controls. She did pledge policies to “lower the cost of everyday needs” like groceries – while also pointedly rebuking what she called a “Trump tax” of expanded import tariffs.

Of course, on the campaign trail politicians of all stripes use populist us-vs.-them language to paint themselves as champions of the everyday American against entrenched forces – and offer superficial solutions to complex economic problems. What worries many business leaders and economists is that Mr. Trump or Ms. Harris might follow through with proposals that harm the very workers and consumers they claim to stand for.

“The Era of Good Economic Policy Is Over,” read the headline of a Wall Street Journal op-ed on Monday by an investment banker.

“There’s a turning point with both sides,” says Michael Bordo, an economics professor and director of the Center for Monetary and Financial History at Rutgers University, New Brunswick. “Their platforms are populist. And they are thinking in terms of simple solutions.”

That doesn’t make their policies – and potential impacts on everyday life – identical. 

Former President Trump’s latest economic proposal is to slap a tariff or tax on imported goods. “We are going to have 10% to 20% tariffs on foreign countries that have been ripping us off for years,” he said at a rally last week. There’s little doubt he would follow through. As president from 2017 to 2021, he imposed stiff tariffs on certain imports. In June, he proposed a wider 10% tariff on all imports and, last week, called for tariff rates that could go as high as 20%.

Trump and the perils of protectionism

The appeal is simple – the notion that tariffs would create more jobs by allowing U.S. companies to make some of those goods. Meanwhile, tax revenues from import tariffs could narrow the federal deficit or fund the extension of his tax cuts. The reality is more sobering. 

A 10% tariff would make imports of everything from food to car parts more expensive, effectively imposing a new $524 billion annual “tax” on Americans, shrinking the economy by at least 0.8%, and eliminating the equivalent of 684,000 full-time jobs, according to an estimate by the Tax Foundation. And the history of tariffs is downright scary.

When President Herbert Hoover signed the Smoot-Hawley tariffs into law in 1930, it set off a tit-for-tat trade war with Europe that cut U.S. exports and imports by two-thirds, making the Great Depression even worse. (The Tax Foundation analysis did not take into account such retaliation and what further costs would come from a present-day trade war.)

But to Mr. Trump’s followers, such warnings carry little weight, because the former president’s populist message has already framed the enemy as a corrupt liberal-leaning elite who can’t be trusted. 

Economists on the right and left alike are sounding alarms. “What disturbs me is the lack of understanding of basic economic issues so displayed by Mr. Trump,” Peter Morici, a former top economist at the U.S. International Trade Commission, wrote Wednesday in a column for the Washington Times.

Many companies and industries, while drawn to Mr. Trump’s promises of lower corporate taxes and less government regulation, now must figure in the risk he poses to their exports. 

Questions over Harris food price proposal

Ms. Harris’ commitment to populist policies has yet to be tested. It’s possible she is using populist language to address her biggest economic liability – the soaring inflation during the Biden administration. Politically, her proposed ban on price gouging on food may play well with voters angry about the postpandemic jump in prices at the grocery checkout lane. But it could also backfire.

“The Democrats are certainly trying to reclaim the populist mantle with their strong support for unions, bashing of billionaires, and price-gouging corporations,” Michael Kazin, a historian at Georgetown University, writes in an email. “But I think they are still largely perceived as a party dominated by urban cosmopolitans with college and post-grad degrees. So that makes it hard for them to speak convincingly in cultural populist ways.” 

Economically, it’s her price gouging ban that has caused the greatest backlash. Ms. Harris’s economic announcement on Aug. 16 has stirred confusion, including worries by business interests as well as many economists that she might support price controls – a practice that has historically harmed, rather than helped, consumers. If instead it’s limited to battling the price gouging that sometimes occurs after a natural disaster or other emergency – as some of her allies say – it won’t do much day-to-day harm or good.

And blaming inflation on greedy corporations is wrong-headed, economists say. Their widely held view: The surge in prices stemmed from a combination of pandemic-era reductions in the supply of many goods, federal rescue packages that put money directly in Americans’ pockets, artificially boosting demand, and the Federal Reserve’s slow response to counter the resulting inflation.

Ms. Harris’ proposed ban hints at a more active role for the Federal Trade Commission, a corporate watchdog that has become more aggressive under the Biden-Harris administration than previous ones. That can be useful in industries where competition has been distorted, such as health care, says Professor Bordo, the Rutgers economist. But, he adds, “it discourages innovation and discourages discovery.”

What’s notable about this political year is that neither candidate is defending the benefits of open trade, a tenet of free-market economics going back to Adam Smith. In fact a key component of Reagan-era economic policies, economic globalization, was embraced by both parties to varying degrees all the way through the Obama administration. Supported by free-trade policies, the U.S. economy has tripled in size since 1981, President Ronald Reagan’s first year in office.

But President Joe Biden has kept most Trump-era tariffs. And Vice President Harris has stood by those policies.

The need for fairness as well as growth

Populism’s core appeal is not hard to fathom. Unbridled economic growth isn’t necessarily fair. Poorer and less-educated Americans, especially those in manufacturing jobs and rural areas, have not reaped many benefits from that growth. Instead, gains have flowed to richer, better-educated, stock-owning voters, especially those in urban areas. The discontent has swelled the ranks of populists on the right.

The Great Recession and the pandemic called into question the wisdom of relying on global supply chains and the durability of growth based on low taxes and minimal regulation. Such millennial skepticism of corporate America has bolstered the populism of the left.

Populism doesn’t provide answers for the future as much as it signals deep discontent with the status quo. Movements often spring up during or after economic crises. Many of the original populists of the late 19th century were farmers who saw crop prices plunge and endured terrible drought even as monopolistic railroads were raising rates to transport goods. 

“[P]opulists roil the waters,” author John Judis concluded in his 2021 book, “The Politics of Our Time.” “They signal that the prevailing political ideology isn’t working and needs repair, and the standard worldview is breaking down.”