As Americans head to the polls next Tuesday for the U.S. presidential election, markets are expected to find some relief, regardless of the outcome. Experts suggest that resolving political uncertainty may reduce market volatility as investors get a clearer picture of the policies that could shape the economic landscape in the coming months. With polls showing the candidates in a tight race, the outcome is nearly a coin toss. But what impact might we expect if Kamala Harris or Donald Trump wins? Let’s examine the potential scenarios:
The Harris Scenario
Democratic candidate Kamala Harris's campaign promises focus on enhancing domestic competitiveness, particularly in renewable energy, semiconductors, and infrastructure. Analysts suggest her policies could sustain current trade practices and economic stability, potentially leading to steady corporate profits. Some expect a Harris win to weaken the U.S. dollar slightly, possibly contributing to short-term inflation. A Democratic victory would likely extend existing policies, aligning with an already robust U.S. economy, but without triggering a significant market boom.
This scenario will make the global stock market much more predictable, making it easier to predict the boom and bust cycle of the U.S. economy, allowing us to adjust our portfolio much more accurately to the economic cycle... But this also means that there will be less short term volatility and less opportunities to take advantage of.
The Trump Scenario
Republican candidate Donald Trump, by contrast, has proposed cutting taxes, especially corporate tax rates, which could increase profits across several sectors, particularly oil, gas, and financial services. However, Trump's stance on trade includes broader tariff hikes, with a proposed 60% tariff on Chinese goods and a 20% tariff on other imports, potentially stirring bond market volatility. Should Trump win, markets may see a mix of higher stock prices, reduced oil prices, and increased volatility.
The U.S. stock market will see a positive market as corporations are able to announce bigger profits due tax cuts. However, the prospects for China and Europe will be much dimmer.
Trump Presidency Impact on China
US-China relations are central to global economic stability, and the outcome of the election could bring significant changes to this dynamic. In response to earlier tariffs under Trump, China’s response was relatively measured. However, a continuation of trade hostilities would likely result in more assertive countermeasures from Beijing, which could influence both economies and global supply chains.
Should Trump impose additional tariffs or revoke China’s Most Favored Nation (MFN) status, President Xi Jinping may authorise a disproportionate response. This could include punitive measures against major U.S. firms in sectors where China has strong domestic alternatives, restrictions on exports of critical minerals, and even a significant sell-off of U.S. Treasury bonds, potentially destabilising U.S. markets.
China’s largest economic lever could involve devaluing the yuan. A drop from its current peg could significantly offset the impact of U.S. tariffs, challenging the Trump administration's weak-dollar strategy aimed at reducing trade deficits. If such moves lead to substantial market disruptions in the U.S., business leaders with strong China ties may press Washington to stabilise relations to protect their interests.
Beijing’s response might also extend into geopolitics. A rise in aggressive actions in the South China Sea or around Taiwan could increase concerns over regional security, with possible ripple effects across Asian markets. Singapore, will be impacted should the trade war intensify.
This may result in a deepening slump in the Chinese stock market given that it is now struggling to recover and an unwelcome trade war will prolong the slump.
Trump Presidency Impact on Europe
If Trump were to impose a 10% tariff on all U.S. imports and a 60% tariff on Chinese goods starting in 2025, the EU would likely respond with its own 10% tariff on U.S. imports. Germany, with its export-dependent economy, would be particularly exposed, while countries like Italy, France, and Spain may also face tariffs on luxury exports, such as footwear and apparel. U.S. tariffs could exacerbate Europe’s existing growth challenges, widening the economic gap between the eurozone and the U.S. and adding pressure to public finances. Germany’s economy, already weakened by the energy shock from the Russia-Ukraine war, could be further strained as an influx of low-cost Chinese electric vehicles threatens its auto industry, while additional U.S. tariffs impact its broader export sector.
These trade shifts could strengthen the U.S. dollar, potentially adding downward pressure on the euro.
Conclusion
Market volatility typically increases in the lead-up to U.S. elections, but this rarely spells disaster for long-term investors. Trump’s pro-business, tax-cutting stance contrasts with Harris’s focus on stability and domestic industry support. While the U.S. stock market is likely to perform steadily regardless, a Trump victory could introduce significant volatility in Asian and European markets.
Under a Trump administration, a more cautious approach would be needed when investing outside the U.S., as Trump’s unpredictability could spur unexpected geopolitical shifts. However, this could also create new opportunities in select markets, depending on how trade and diplomatic policies evolve.
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