It is tempting to dismiss the US election as just ‘noise’, but the result will have repercussions across the world.
- Trump has promised a pro-America agenda with widespread tariffs
- Tariffs would hit companies across the world and could potentially raise domestic inflation
- There are knock-on effects for European governments
The US election race has already provided its fair share of drama: a televised meltdown, a replacement candidate, Trump’s spiky VP pick. And that’s before anyone has even got to any policies. The temptation is to view it all as theatre, but to what extent will there be consequences to the election result beyond the US?
It is possible to see a range of scenarios. The first is that Trump gets in, and manages to win the Senate and the House of Representatives as well. This would allow him to pursue his policy agenda in full. Beyond that, there are various levels of power, which could limit his ambitions. A Harris/Walz administration is likely to continue with a Biden-like programme.
While the details are sketchy, Trump is clearly following a pro-America agenda. This is designed to encourage domestic industry and self-reliance. However, there will be no Bidenomics-style industrial policy and spending programmes. Trump appears to be relying mostly on tariffs to deter imports.
These tariffs may be as high as 60% for Chinese-made goods, but even friendly countries are not immune. Trump is floating a 10% across-the-board tariff on all goods coming into the US. That hits companies across the world and threatens to raise domestic inflation. This would give the Federal Reserve a major headache on rate setting. It is possible that Trump’s plans for domestic tax cuts push economic growth higher. However, this is not assured and his policy path has plenty of associated risks.
There would also be difficulties should the US withdraw funding from Ukraine. This would force European governments to spend more on defence, at the expense of other areas of their economies. Defence spending is often seen as an unproductive area of investment, and therefore this may exert a dampening effect on growth at the margins.
The Harris/Walz agenda is less clear, though is likely to continue many of the Biden programmes. It is focused on strengthening the middle class and trying to lower living costs. Areas such as affordable health care, affordable child care and paid leave appear to be priorities. The devil will be in the detail, with the US deficit barely sustainable under current spending plans.
The US election matters for everyone and investors will need to remain alert to the consequences of different outcomes. A Trump administration without the Senate or the House of Representatives would be a different prospect to one where he could command the support of both houses. The potential for market volatility as November draws closer is high.
