Trump vs. Harris: Potential Economic and Political Impact

**Trump vs. Harris: Potential Economic and Political Impact**
As the public debt stands at an alarming 108% of GDP, one could speculate that one of the candidates will prioritize debt reduction. Joe Biden is perceived as a “lame duck,” which may hinder his ambitions; however, this situation might also propel him to intensify his efforts to stimulate the economy during his remaining time in office, aiming to solidify his legacy through the potential election of Kamala Harris.
The prospect of a Harris administration raises questions: would she pursue a more rigorous antitrust agenda than Biden? The answer remains uncertain, primarily because both the Federal Trade Commission and the Department of Justice are currently facing constraints imposed by the courts. Harris appears to be courting corporate support, indicating a reluctance to govern from the far-left. Nonetheless, investors will seek clarity regarding her stance on capitalism, business operations, and corporate profits. Conversely, a second term for Donald Trump would likely introduce its own uncertainties. Would he successfully implement all proposed tariffs? To what extent could he enforce immigration laws and trade policies? Overall, Trump’s policies on these three matters could significantly influence inflation and economic growth, whereas his presidency would likely entail deregulation and a lack of tax increases.
With U.S. public debt at 108% of GDP, compared to 84% in 2018 and merely 42% in 2008, one would expect that one of the candidates would prioritize debt reduction. According to the Congressional Budget Office, extending Trump’s tax cuts from 2017, which are set to expire in 2025, could add approximately $4 trillion to the debt over the next decade.
Some of the deficit could potentially be offset through an expanded state and local tax deduction. Certain tax cuts, particularly the reduction of corporate tax rates, have undoubtedly contributed to the strong economic growth observed in recent years (excluding the COVID-19 pandemic). Harris might opt to allow these cuts to expire or, at a minimum, impose limits on revenues while increasing the corporate tax rate. It is probable that she would decrease savings by reinstating state and local tax deductions. Long-term, addressing the debt crisis necessitates comprehensive reforms of key entitlements, including Social Security, Medicare, and Medicaid.
Trump’s platform includes implementing blanket tariffs of 10% and up to 60% on Chinese goods. While Presidents do possess some leeway in this area, their authority is not absolute. Given that these tariffs would not be linked to negotiations with other countries, a 10% tariff on all goods would likely face legal challenges. Trump would have greater success imposing selective tariffs, especially if he substantiated that national security is at risk or if a foreign country engages in illegal subsidies for its exports.
As a senator, Harris distanced herself from free traders, opposing both Obama’s Trans-Pacific Partnership and Trump’s United States-Mexico-Canada Agreement, citing labor and environmental concerns. Regarding general legislative politics, should a divided government occur (a plausible outcome), the subsequent administration will need to determine whether to pursue bipartisan agreements. In recent years of pronounced polarization, it has been customary for Presidents to enact what they can when their party controls Congress and adopt a moderate legislative agenda when this is not the case.
Analysts from Piper Sandler indicate that out of five economic indicators used to forecast the White House trajectory, only one—poverty—favors Harris. A closer examination of the electoral landscape suggests that it is likely the Senate will remain under Republican control, while the House of Representatives remains contested. Therefore, a Republican victory appears more likely than a Democratic one.
Due to its strong reliance on global exports and the adverse effects of a trade war, European equities have fluctuated inversely to Trump’s chances. In contrast, high-performing tech companies, the so-called “Magnificent Seven,” have seen mixed performance favoring Trump, possibly due to his intention to lift Biden’s restrictions on artificial intelligence. Given Harris’s prior support for Medicare for All, healthcare companies might face challenges if her victory appears imminent.
A Trump win could potentially lead to increased oil production, although the high production rates currently seen in the U.S. raises questions about the extent of this possibility. A decrease in energy costs would likely help curtail inflation and foster growth. If Trump prevails, the financial sector may thrive due to a surge in mergers and acquisitions, a more pronounced yield curve, and less regulatory scrutiny. Typically, value stocks, particularly in cyclical and energy sectors, are expected to perform better should Trump win. Conversely, electric vehicles and green technology may flourish under a Harris administration. Ultimately, market reactions will likely be more heavily influenced by economic data than by polling results. The S&P 500 rose over 21% in the twelve months following Trump’s victory in 2016, but despite these significant gains, the sectors associated with his victory only maintained their momentum for one month.
We stand at the threshold of an unprecedented electoral year, and one of the two candidates will ultimately secure victory. However, the pressing question remains: what will follow?
**Linda Duessel**
Senior Equity Strategist at Federated Hermes