New policies, new risks. If enacted, both presidential candidates’ policies would have far-reaching consequences for the global economy and financial markets. On balance, both pose downside risks.
Policy overview. We analyse the candidates’ most significant policy proposals for UK equities and consider their economic implications. We see Trump’s tariffs, and the likely retaliatory response, as well as Harris’ corporate tax rises as the greatest risks.
UK sector deep-dive. We consider potential impacts on our UK equities coverage and provide a summary table of conclusions.
More questions than answers. In an election that is too close to call, the direction of US economic policy may remain unclear even after the result is declared. The outcome of the congressional elections will matter as much as the vote for the next president. Risks abound.
A crucial election. The US heads to the polling booths on 5 November. Voters will elect a new president (Republican Donald Trump or Democrat Kamala Harris) and vice president, along with all voting seats in the House of Representatives and a third of the seats in the Senate. The outcome holds significant implications for the global economy and financial markets, including the UK stock market. We analyse the candidates’ policy proposals side-by-side and consider the potential impacts on UK stock markets.
Economic risks abound. Looking at the broad strokes, while both candidates have proposals that could provide some upside for certain sectors, on balance, their policy platforms involve a series of anti-growth measures that – if enacted - could impair US economic performance and create risks for financial markets. Importantly, the outcome of the congressional elections will matter almost as much as the vote for the presidency. However, while a mixed congress would act as a significant check and balance against Harris’ riskiest fiscal proposals, Trump could still pursue his plans for higher tariffs via executive order. This may have caused more imports to be ordered early to avoid the tariffs and could mean new orders for imports decelerate, regardless of the outcome. Whilst both candidates plan to increase defence spending, Trump plans to reduce or eliminate assistance for Ukraine, which may have implications for global security.
Critical uncertainties. As the election remains too close to call, we consider a range of scenarios. Furthermore, even once the outcome of the election is known, the precise path of US economic, trade, and foreign policy will only become fully apparent after the president takes office on 20 January and the new Congress begins the legislative progress. In our assessment of the potential impacts on UK equites, we emphasise that our analysis is a rough guide to the potential risks and their impacts.
US election: serious uncertainty ahead
The US heads to the polling booths on 5 November. Voters will elect a new president and vice president, along with all 435 voting seats in the House of Representatives (House), and a third of the 100 seats in the Senate.
Presently, the US executive branch is held by Democrats President Joe Biden and Vice President Kamala Harris, while Congress is divided. The Republicans hold a narrow majority in the House with 220 seats, while the Democrats hold a two-seat majority in the Senate with 47 seats plus four Democrat-leaning independents.
Too tight to call
According to The Economist, candidate Trump is slightly ahead in the presidential race, while Republicans are well ahead in the Senate race. But the Democrats have a slight edge in the House race. Polling and prediction models point to close races for the presidency and House, making the outcome almost a coin toss. The most likely plausible outcomes are: i) a Trump presidency with a full Republican sweep; ii) either a Trump or Harris win with a mixed Congress (Republican House and Democrat Senate); iii) a Harris victory with a Democrat sweep; or iv) a Harris victory with a Republican sweep.
Contested election – what if?
As it can take days to fully count all the votes, elections that are not decided on the night of the vote can become ‘contested’. Resolving contested elections is a long and drawn-out process which is not governed by a central authority, has no clearly established set of rules, may involve multiple recounts, and can involve rulings of state supreme courts.
This messy process creates incentives for candidates to fight the election results even after voting has ended. The last time it happened was in 2000 when Democrat Al Gore officially conceded to Republican candidate George Bush Jr on 13 December, after more than a month of uncertainty following election day on 7 November.
In the usually hostile present US political environment, it seems unlikely that either candidate would be ready to concede unless the necessary courts have declared in the other’s favour. Even then, the risk of discord may not be fully over. On 6 January 2021, a mob in favour of keeping Trump in office, railed against the election result for Biden and stormed the US Capitol Building in Washington. In a worst-case scenario, the risks associated with a contested election could persist all the way until inauguration day on 20 January 2025. Escalating political disenchantment in the US would amplify uncertainty over the outlook for US economic, trade, and foreign policy.
Assessing the candidates’ policy proposals
The policy proposals of Harris and Trump both contain a series of radical measures that, if implemented, could dramatically change the economic and policy direction of the US economy. While certain policy proposals could provide some upside for certain sectors, on balance, both candidates propose a series of anti-growth measures that – if enacted - could impair US economic performance. Neither candidate has proposed a serious plan to reduce ballooning deficit spending or the ever-rising stock of US public debt as a percent of GDP - which pose growing risks to US economic and financial stability.
We provide details of the candidates’ platforms side-by-side in Figure 1.
Harris’ proposals for higher taxes, spending and regulations are an expanded version of the Biden administration’s policy platform. However, her suggestion that she could use price controls to lower the cost of living and to tax on unrealised capital gains represent a major lurch to the left, and a departure from Biden’s mostly pro-business policy agenda. Harris’ policies could impede the dynamism of the private sector, harm profits and investment, and threaten a rout in US equities.
Trump’s plans for lower taxes and modest spending are of the standard Republican variety. However, he departs from his party’s typical line with his plans for large import tariffs and immigration curbs. While tariffs would push US consumer prices up and reduce household real income, aggressive immigration controls would harm employment growth and impair supply potential. However, less regulation and corporation tax cuts could provide a boon for stock markets.
In our view, the overall policy thrust of both candidates would be decidedly negative for medium-term US economic growth and would likely contribute to a weaker dollar on trend. In the case of Trump, however, that could come after a period of dollar strength as markets rush to the US safe haven amid an initial period of heightened uncertainty.
On foreign policy, whereas Harris would probably stick with the long-established convention of working with allies through the normal channels to resolve ongoing conflicts in Eastern Europe and the Middle East, and to manage relations with China, Trump is a wildcard. His ‘America first’ approach to foreign and geopolitics will be unpredictable. The lesson from his first presidency is that his erratic and unconventional approach creates challenges for US allies as well as its rivals.
Checks and balances - the role of congress
Congress can activate important checks and balances on presidential power in key policy areas. Presidents require Congress for tax and spending policy and for the approval of key appointments such as the chair of the Federal Reserve (Fed) – which may be important when current Fed chair Jerome Powell’s term ends in 2026. However, presidents have a great deal of autonomy over trade policy and large swathes of regulation. During his first presidency, Trump increased US tariffs via executive order – a route he may repeat in a second term. For foreign and immigration policy, the legislative process is complex and uncertain – some changes would require Congress, while others would not.
While congressional checks and balances are not automatic, the chances are that either candidate would face an uphill struggle in passing any legislation that cannot be done via executive order alone in case the election results in a mixed Congress. The outcome of the congressional elections matters a lot when considering whether downside risks could be contained – this applies more in the case of Harris than Trump, since her high-risk policies are mostly on the tax and spending side, whereas Trump’s tariff plans could be enacted via executive order.
The US remains the most systemically important global economy. As a result, a lurch to more radical policies would create major ripple effects across the globe and international financial markets. So far, we have only considered the initial effects of the candidates' platforms. However, the ultimate result of many of these proposed policies – if enacted – would depend upon the reaction of other countries. It is an open question, for instance, how Europe and China may react to tariff threats by Trump – will they try to strike a deal or escalate? In addition, it is not clear whether any tariffs imposed on the EU by Trump would also apply to the UK. These are key questions that markets will need to contend with in the coming weeks and months.
Figure 1: Summary of US presidential candidate proposals
