US election 2024

The overall stance of fiscal policy might be similar under Trump and Harris, but the two offer starkly contrasting visions in terms of taxes and spending. Trump has pledged to fund tax cuts with revenues from import tariffs, whereas Harris has pledged to raise taxes on firms and high-earners in order to fund social spending increases (see here and here). Trump’s policies present the largest upside risks to inflation, due to the impact of tariffs on import prices, which could force the Fed to keep interest rates higher than it would do otherwise.

However, the realities of governing mean that the impacts on both inflation and GDP growth of Trump's stated policy intentions should be smaller than many anticipate were he to win in November (see here).

Even if Donald Trump imposed 10% across-the-board tariffs with no carve-outs for European allies, we suspect that the economic impact would be relatively small. The value added from goods exports to the US is equivalent to less than 2% of euro-zone GDP. And assuming that the tariff was imposed on all countries, the price elasticity of demand for euro-zone exports to the US would be relatively low. What’s more, it seems likely that an appreciation of the US dollar would limit any adverse impact. Similar arguments apply to the UK, where the likely exemption of services exports would be particularly important. (See here and here)

Emerging economies would continue to benefit from friendshoring opportunities under a Kamala Harris presidency. The implications for EMs of another Donald Trump presidency are less clear-cut: large tariffs on China would hurts its economy but could speed up investment in manufacturing capacity elsewhere. However, a broader global retreat behind trade barriers would cast a shadow over future manufacturing-led growth for EMs. Learn more here about how the election could affect the outlook for EMs.

We'd expect higher Treasury yields if Donald Trump wins the presidential election rather than Kamala Harris. Another Trump term would also be a headwind for equities – especially outside of the US – though it wouldn't necessarily pop the bubble inflating around AI hype. As for the dollar, there is an inherent contradiction between Trump’s policy platform, in particular his views on trade policy, and his stated desire for a weaker dollar; our assessment is that at least the initial response to a Trump win would be a stronger dollar, but whether that would persist is less clear. See here for more on the market impact of another Trump presidency, and our latest equities market forecasts here.

China’s leadership prefers stability and its economy benefits hugely from the current global system of still largely-open trade. A second Trump term would bring uncertainty, turmoil, higher tariffs (probably) on Chinese goods and a global retreat (possibly) from free trade (see our thoughts on the impact of the tariffs here).

But it could also splinter the coalition of allies that has amplified US efforts to contain China’s economy during the Biden presidency. A Harris presidency would be a less of a threat to China’s near-term outlook. But if she continued with Biden’s coalition-building approach, China would probably be much more constricted economically over the medium term. See here for more.