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With the U.S. presidential election just hours away, investors are focused on what each candidate’s victory could mean for the global economy, stability, and, of course, the markets.
To understand this, one would have to delve deeper into each campaign, but as time is short, here are the main points that could significantly impact the economy and geopolitics.
Starting with the latter, traditionally, a Republican victory suggests more contracts for defense companies like Lockheed Martin due to increased military spending. But this year, things are less clear-cut.
Donald Trump has pledged to reduce tensions in the Russia-Ukraine conflict and the Middle East, while Kamala Harris would likely continue Biden’s focus on supporting Ukraine, Israel, and Taiwan.
Yet, the Republicans’ return to power need not necessarily translate into a more stable foreign policy. Trump’s campaign includes imposing a 20% tariff on all imports and a 60% tariff specifically on Chinese goods.
While this approach might not lead to direct conflict, it could have serious economic repercussions. These tariffs could drive up inflation, which could lead the Fed to reconsider its rate path.
This would increase consumer pressure and lead to more companies failing as they struggle to repay or refinance debt, thus offsetting any potential gains from the trade war.
On the economic side, Harris’s plan to raise the corporate tax rate from 21% to 28% could weigh on company profits, likely deterring investors and impacting the S&P 500, Nasdaq, etc.
Trump, in turn, aims to keep tax breaks for the wealthy and cut the corporate tax rate to 15% for U.S. manufacturers. The New York Times also reports he’s considering eliminating income tax for all Americans.
Both candidates have costly proposals that do not address the growing U.S. deficit: Trump’s plans could increase it by $7.8 trillion. Harris’s could add nearly $4 trillion over the next decade.
It is also worth noting that approval of these initiatives will depend not only on who occupies the White House but also on which party holds the majority in the Senate and the House of Representatives.
