October Monthly Investment Strategy - A far-reaching US election
- 23 October 2024 (10 min read)
“Remember, remember the fifth of November”
The US election is just weeks away. It is difficult to escape its shadow, not just for US activity and financial markets, but for the rest of the world. That shadow spreads more vividly as developments have seen Vice President Kamala Harris start to lose momentum in recent weeks: a mild narrowing of her lead at national levels and a more distinct reversal of polling leads in the key battleground states – albeit to levels below polling error margins. These subtle shifts have triggered moves in betting markets to see Donald Trump as the likely victor. Financial markets have followed. To us, polls are still on a knife-edge, but the balance of risk feels like it has moved.
Beyond the US, this is important for the rest of the world. Our Theme of the Month summarises recent research1 which looks at the US election’s potential impact on the rest of the world. We believe a Trump victory poses a more disruptive risk for overseas economies than a Harris win. Trade policy is top of those fears. Trump has threatened a range of tariff increases on most economies. China is the focus with threats of 60% tariffs. East Asia would be buffeted by any material realignment in trade flows. The impact on Europe would be appreciable, but perhaps little more. Closer partners, including Canada and Mexico could also see bigger effects, the former plausibly boosted if it avoids tariffs, the latter embroiled in tense relations ahead of the United States-Mexico-Canada Agreement (USMCA) trade renegotiation in 2026.
Trump’s other policies may also reverberate globally. A clampdown on migration (and deportations) risks slowing US potential growth and restricting the Federal Reserve’s space to ease policy. The extension of expiring tax cuts at the end of 2025 looks set to lift the deficit higher, a risk to US Treasury yields, particularly as coupon issuance rises. Trump’s security stance could have deep implications for European and East Asian security and defence spending. But deregulation – particularly in oil and gas – may deliver further production which could further depress energy prices. This mix of direct or financial market spillovers is likely to buffet several international economies over the coming years.
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