Investing.com -- Investors need to take the risks of increased US tariffs seriously, particularly after Republican presidential hopeful Donald Trump emphasized his plan to use import taxes as a key economic policy tool this week, according to analysts at Wolfe Research.
Speaking during a campaign event on Sept. 24, Trump threatened to slap 100% tariffs on every car coming into the US from Mexico, adding that he would reward US-based manufacturers with research and development tax credits. Earlier this week, the former president also said he would hit agricultural equipment maker John Deere (NYSE:DE) with a 200% levy on its imports into the US should the firm go ahead with plans to shift production to Mexico.
Trump has previously vowed to impose a blanket tariff of 10% to 20% on almost all US imports, including a 60% import tax on items coming in from China.
Trump has argued that such moves would help lift US manufacturing activity. Recent polling suggests that a majority of likely voters back the proposal and believe Trump would be a better steward for the economy than his Democratic rival Kamala Harris, Reuters reported.
But economists have warned that the tariffs could refuel waning inflationary pressures.
In a note to clients on Thursday, the Wolfe Research analysts said that, despite the potential downsides posed by the stance, tariffs have "increasingly become the answer to every question for the Trump campaign."
"He has doubled down on his main tariff proposals and pointed to them as his solution for boosting domestic manufacturing, lowering the US deficit, subsidizing childcare costs, stopping de-dollarization, and deterring wars," they wrote.
Meanwhile, Harris also laid out more details of her economic agenda this week in an 82-page booklet. Among the proposals, the vice president, who has called Trump's tariffs plans a "sales tax" on American households, offered to provide tax incentives to domestic businesses to keep their operations in the US.
The Biden administration, however, has recently instituted its own tariffs and hiked import duties on certain Chinese goods. Harris has not explicitly said if she would extend these policies, but her campaign's website says she "will not tolerate unfair trade practices from China or any competitor that undermines American workers."
When analyzing the two economic plans, the Wolfe Research analysts noted the "fundamental asymmetry of the 2025 policy outlook." In their projections, Republicans are likely to gain control of the US Congress, which would make it easier for Trump to pass his proposals and harder for Harris to carry out hers.
"This is clearest on tariffs, where Trump plans to rely on existing presidential authorities," the Wolfe analysts said. "So incremental signals on how serious Trump is about tariffs are meaningful for markets, but investors probably won't need to worry about the details of Harris' tax plans."
(Reuters contributed reporting.)