Harris would continue to support Ukraine and continue the so-far unsuccessful US efforts to mediate a ceasefire in th Middle East while maintaining support for Israel. She would seek to preserve America’s role in the world and its traditional alliances.
There are a host of other differences in the detail of very different sets of competing policies but the basic conclusion is that, depending on who prevails, America and its relationships with the rest of the world could be very different.
China will be hit hard if Trump wins and carries through with his economic threats. This in turn would hurt Australia, because of our dependence on China’s economy. Credit: Bloomberg
That makes it challenging for investors. Adding to the degree of difficulty in assessing the implications of the election outcomes, is that the effectiveness of a presidency depends on the makeup of Congress.
A “sweep” – the presidency and control of both the House and Senate – by either Trump or Harris would enable them to implement their platforms, largely without having to compromise.
A Republican sweep and the likelihood that Trump could implement most of his plans would be bad for bonds because of the implications for US inflation and the massive increase in the supply of US Treasuries but probably good for the sharemarket, because of his tax cuts and deregulation.
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It would also likely be positive for crypto assets, now that Trump, once disparaging about cryptocurrencies, is such a true believer that he and his family recently launched their own crypto business.
A Democrat sweep might be regarded as threatening to the sharemarket, because of Harris’ tax policies, but would otherwise broadly represent a continuation of the Biden administration’s approach to the US economy and to international relationships.
A divided Congress, with the Democrats and Republicans each controlling one of the chambers, is a more likely outcome and would limit their ability to implement their economic agendas, although it probably wouldn’t prevent Trump from erecting his tariff wall.
The sharemarket has historically fared best when control of Congress is divided and there is a check on the administration.
Perhaps counter-intuitively, the market has done better under Democrat presidencies than when a Republican is in the White House – the market during the Biden presidency has performed far more strongly than during Trump’s – and even better when those presidencies have had to coexist with a divided Congress.
The range of possible outcomes means there could be multiple different contexts post-election for markets, with the likelihood that the results could be challenges and there could be weeks, if not months, before that outcome is finally settled providing a difficult environment for investors.
It has become increasingly difficult for investors, with two candidates promising two very different futures. Credit: AP
Until the past few days there was confidence in the markets that Trump would regain the presidency. The “Trump trades” were clearly evident, with the sharemarket, bond market, crypto market and the most obvious barometer — Trump Media’s share price – all signalling a Trump victory.
With Harris, according the polling, seemingly now neck-and-neck, those trades have subsided.
The US sharemarket has edged down. Bond yields, which had soared over the past month in expectation of a Trump-induced breakout of inflation, have stabilised. Bitcoin’s price, which spiked last month, has fallen five per cent in the first few days of this month.
Trump Media’s share price provides the clearest sign that Trump supporters are getting nervous. Having soared 220 per cent last month, it has slumped more than 40 per cent so far this month.
This election has very real implications for the rest of the world and particularly for America’s traditional allies, facing a trade war and an American retreat from the global post-war order that it played such a central role in creating.
The US economy is performing strongly. It is growing and increasing its productivity even as the inflation rate and US interest rates are falling. The Fed, which meets this week, is expected to announce a 25 basis point cut, with the markets pencilling in another similar cut in December.
The Biden administrations’ Inflation Reduction Act, its CHIPS Act and its infrastructure spending have sparked an investment boom, particularly in manufacturing. The CHIPs Act, designed to increase domestic semiconductor production, has seen more than $US400 billion of new investment promised by chips manufacturers.
Trump (who describes the subsidies and loans for semiconductor manufacturing as “so bad”) and House Speaker, Mike Johnson, have said they would seek to repeal the CHIPS Act and the “green” components of the Inflation Reduction Act.
This election has very real implications for the rest of the world and particularly for America’s traditional allies, facing a trade war and an American retreat from the global post-war order that it played such a central role in creating.
Johnson has subsequently backed away from his comments and said he would seek to excise regulatory and environmental requirements from the legislation. Much of the investment sparked by the Inflation Reduction and CHIPS acts has been in Republican-leaning states.
For the rest of the world, however, it is Trump’s trade policies and the likelihood that they, with his immigration and tax plans, would reignite US inflation, blow out its government debt and shrink the US economy while generating geopolitical volatility that are most threatening and would have the most impact on their economies, currencies and their financial markets.
China, Australia (because of our dependence on China’s economy), the European Union and emerging market economies would all be hit if Trump is back in the White House and is able to do what he says he will do.
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This election is therefore of real consequence, not just for Americans, their economy and their financial markets but for the rest of the world because the outcomes and their implications could be so radically different – either relatively benign or very threatening – depending on the occupant of the White House and the makeup of Congress.
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