Source: LSEG Datastream

The point of the above is not to argue that every government is the same, they clearly aren’t. Rather, we think that the major market events that people remember decades after the fact are almost always caused by factors outside of a government’s control. The various policy agendas and platforms of different administrations will impact the economy and markets at the margin, however, can also go a long way to creating winners and losers within various cycles.

Policy Platforms

What about what the candidates are actually proposing? From a market perspective, the areas of potential policy changes which matter the most are tariff increases, changes to corporate tax rates, migration changes and industry policy. The highest impact specific proposal is from Trump in the form of higher tariffs. While there have been a number of different plans floated by the Trump team, it is clear that he will push for some degree of tariff increases, particularly on imports from China. Tariffs are in general a terrible idea. They increase the cost of goods for consumers and businesses at a net negative cost to economic growth. Tariffs redirect economic activity towards inefficient industries. The US workforce is highly productive relative to poorer countries. Why move them away from where they create the most value? Studies measuring the impact of Trump’s tariffs in his first administration showed a net loss to the economy. Government and business revenue rose, but this was more than offset by higher consumer prices for items whose tariffs were imposed/increased. 

Otherwise, Harris’s proposal to increase corporate taxes will weigh on equities at the margin. She is proposing to unwind a portion of the corporate tax cut Trump legislated in his first term in office. Harris is also proposing higher taxes on wealthy families and higher income earners. This will be offset by tax credits for childcare, healthcare and home purchases. Some of her proposals are a bit whacky - taxing unrealised capital gains is not very practical, removing taxes on tips doesn’t make much sense either. That said, airing whacky proposals are what election campaigns are for. 

On the immigration front, Trump is pushing for a much lower rate. Given immigration is much higher now in the US than it was pre-Covid, and that immigration is arguably in part to blame for the currently rising unemployment rate, the net economic cost to this will probably be minor. On the industry policy front, the most significant change is a proposal from Trump to repeal the inflation reduction act – which has been a significant source of US fiscal stimulus in recent years.

Below is a table summarising the key economic policy positions of Trump and Harris going into this year’s election.