- More tax and homes under Harris
- Trump wants tax cuts, deregulation and tariffs
- Valuations supersede politics in US
The contest for the US presidential election in November is gathering momentum following the selection of Kamala Harris as the Democratic candidate. Many issues will be at stake as she faces off against Donald Trump, but to what extent could the economic policies pursued over the next four years in the world’s richest country be decisive for investors?
Tax cuts, deregulation and tariffs
Both candidates have already shown their economic colours to some extent – Trump through his first term as president and Harris in the last four years as vice president.
Trump’s policies are expected to be a continuation of those seen during his presidency, namely tax cuts, deregulation and international trade barriers.1
His Tax Cuts and Jobs Act 2017 cut corporate tax from 35% to 21% and provided temporary cuts for individuals to stimulate economic growth. His administration focused on deregulating various industries, especially energy and finance, with the former seeing environmental regulations rolled back to boost the fossil fuel industry. There are question marks over whether there will be as much scope for fiscal largesse as last time, should Trump win.
Trump’s presidency represented a tilt towards a more hawkish stance on China, which President Biden also embraced. Trump’s most anti-free market policy was the imposition of tariffs on imports, especially from China, while the strict immigration restrictions he imposed were another example of his protectionism towards US jobs and wages.
More tax, homes and workers’ rights
For Harris, a key question is the extent to which she will continue the policies of the Biden administration while distancing herself from the cost of living crisis that happened during it.2 Her policies focus on empowering the middle class, ensuing affordable healthcare and housing, imposing more progressive taxation and reducing income inequality through providing broader economic support.2
Her housing initiative includes building three million new housing units with tax incentives for builders of affordable homes, while she would also extend the Biden administration’s efforts to cut the cost of prescription medication. She wants to give more rights to workers to organise and bargain collectively, create jobs by promoting investment in the US and lower the costs of childcare, education and long-term care.
Comparing the two
Much could be said about the potential relative impacts of both candidates’ economic policies.
The failed attempt on Trump’s life led to a bump in the polls which resulted in a brief ‘Trump trade’. The US dollar and stocks moved higher while 10-year treasuries dipped on greater expectations that his presidency would lead to greater government spending, looser regulations and corporate tax cuts.3
On the other hand, Harris’s home-building plans could be seen as supportive of the housing industry. Although her policies could be seen as more pro-international trade, it should be remembered that the Biden administration continued the anti-Chinese restrictions imposed by Trump that resulted in trade wars and higher prices for consumers. This anti-China stance could be understood to be an essential ‘American’ policy to reduce reliance on China in an increasingly multi-polar world. Russia’s invasion of Ukraine and the Covid-19 pandemic illustrated the important of this.
Sticking to our process
Whatever the outcome from what looks set to be a very close presidential race, our approach to investing globally, and indeed in the US will stay the same. We do not expect political machinations to have a material impact on the long-term prospects of major asset classes. Over the long run, the US stock market has risen on average, whatever the permutation of government, senate and house of representatives. US businesses are run to generate profits for shareholders regardless of the political winds. Inevitably, new governments bring change, and there will be winners and losers because of those changes, but a diversified basket of stocks should provide long run returns in line with historical norms for the equity market.
If the US were an unpredictable, politically unstable country then more attention would likely need to be paid to election noise. But the US is a centrist, democratic country where rule of law is respected. This means it is more appropriate to base investment decisions on valuations of assets and long-term fundamentals – which is an integral part of our investment process.
Where possible, we make use of active managers to provide access to stock picking skill which should help to identify potential beneficiaries of any political change and we ensure all of our funds and portfolios retain a significant level of diversification to ensure they are not overly sensitive to any single risk factor, such as an election result.
1Source: Wikipedia
2Source: Cutting costs at great cost, The Economist, 24 August 2024
3Source: Reuters, 15 July 2024
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