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A tight race
Before the summer we reviewed the upcoming presidential election and its likely impact on the US economy. At that time, President Joe Biden had just bowed out of the race and been replaced by Vice President Kamala Harris. Former President Donald Trump initially led Harris by a modest amount in overall polling approvals, though by less than he had led Biden. Since then, Harris has seen an improvement in ratings. Rising from a deficit of 1.7 points, she now leads Trump by 2 points.
Exhibit 1 illustrates this polling boost has spilled to marginal states. Harris has significantly reduced Trump’s lead in all marginals: all now appear competitive, with Harris leading narrowly in Nevada, Michigan and Wisconsin, and far ahead in New Hampshire. Only Florida remains staunchly pro-Trump.
Exhibit 2, however, shows that based on this polling, Trump still wins the electoral college count, although we would argue that 7 of 8 key states are now within polling error margins. Allan Lichtman, the US historian who has correctly predicted each election since 1984, recently announced his prediction for a Harris win after Teddy Kennedy Junior’s withdrawal.
Exhibit 3 suggests the election is far from decided. Eight years ago, Hillary Clinton enjoyed far larger leads than Harris has over Trump but went on to lose. Four years ago, Biden also had a much bigger poll lead, but eventually only won with half the lead predicted and by 43k votes in three key states. Harris’ convincing performance in September’s televised debate has arrested a tentative softening in her lead after the initial honeymoon and post-Democrat Convention support.
Exhibit 1: Harris makes marginal states races competitive
In this paper we consider the impact the US election could have globally. We believe a Harris win could have a material impact on the outlook for domestic activity – particularly distributionally – albeit our expectation remains she would face a split Congress, which would hamstring bolder policy. Her victory’s impact on the world would thus likely be limited to the not inconsequential spillover effects from US growth.
Exhibit 2: Trump currently still wins electoral college vote
Yet a win for Trump would have more direct impacts for many economies and could start a chain of events that could lead to many indirect effects. In particular, we consider the impact of Trump’s proposed tariff policy. While we have explained that in price terms this is something we would expect to be felt more by US consumers than foreign producers, in volume terms this is likely to have a material impact on China – the focus of Trump’s campaign ire – with a proposed 60% tariff. By contrast, while the Eurozone would face a plausibly smaller 10% tariff – from the roughly 5% weighted tariff currently – trade tensions could rise further in the face of any European Union (EU) retaliation or from the EU’s separate efforts to address carbon emissions through its Carbon Border Adjustment Mechanism.
Exhibit 3: Harris leads Trump, but Clinton led by more and lost
These policies are likely to drive US interest rates and the dollar higher – despite Trump’s protestations to the contrary. This would impact the global economy, particularly emerging markets.
We also consider the implications of Trump’s statements on security. His antipathy to North Atlantic Treaty Organization (NATO) and suggestion of a settlement in Ukraine could signal a period of security withdrawal from Europe. In the face of persistent Russian aggression, Europe could have to revert defence spending to levels that prevailed before the post-Soviet Union ‘peace dividend’ – which is something few European economies are well placed to fund. In Asia, Trump has also threatened less security provision, or a moretransactional relationship. This could also see a reduction in US security presence here, with implications for many nations in Southeast Asia.
More broadly, we examine Trump’s likely environmental stand. Reneging on the Paris Agreement in his first term, we expect Trump to weaken climate change avoidance policies. While we have argued that Trump is unlikely to reverse Biden’s signature spending bills completely, he is likely to oversee deregulation of oil and gas production, boosting output for both. In the short term this is likely to lower energy costs, softening inflation outlooks globally. However, over the medium to long term this is likely to keep US greenhouse gas emissions high.
We consider the possible impact on Europe and China, before broadening our outlook to consider Emerging Asia, Japan, Mexico, Canada and Emerging Europe.