As we head closer to the US election on Tuesday 5 November, US Republican candidate Donald Trump and Democrat presidential nominee Kamala Harris look pretty evenly matched at this point. Whoever becomes the next US president, the outcome will directly impact Australian banking and finance.
A Harris presidency is likely a continuation of the Biden approach, although a Republican win may be a positive outcome for global business.
While both parties are light on detail when it comes to their policies, the Republicans have promised they will defeat inflation, bring down prices and ‘build the greatest economy in history.’ Less palatable are pledges to seal the southern border.
The Democrats are also planning to fight inflation, build the manufacturing sector and lower costs. On face value their policies are very similar.
Diana Mousina, AMP’s deputy chief economist, says the main impact of a Republican victory is navigating what that means for global trade and for the share market.
“Whoever wins on 5 November will influence interest rates and demand for commodities,” she says.
While both parties are focused on re-building the US manufacturing sector, Mousina notes many countries have implemented policies so their manufacturing bases are more domestically-orientated.
“This started before the pandemic, but ramped up with it. The rhetoric of America first has infiltrated other countries like Australia. We have our own Australia-made policy, but it's not as intense as it is in America,” Mousina explains.
David Bassanese, BetaShares’ chief economist, says the most serious consequence for Australia from the US election, no matter who wins, is whether the outcome results in reduced demand for Australian commodities.
“A trade war with China is the main concern if the Republicans win because they have threatened to increase tariffs on Chinese goods,” says Bassanese.
“We get caught in the crossfire if China decides to import more from the US instead of Australia to appease the US. Higher demand for US exports means less demand for Australian exports,” he adds.
Bassanese doesn’t expect any real escalation in trade tensions between the US and China should Trump win.
“More often than not he’s more talk than action. Trump wants to have good relations with Russia and maybe therefore indirectly with China as well. So I don't know if he really wants to stoke tension too much," he adds.
Renewed uncertainty in a changing landscape
The US election has share market implications before and after polling day. Share markets will likely rally if investors thinks the Republicans will win. This is because traditionally their policies are business-oriented.
“The last time the share market rallied when Trump was elected because he campaigned to reduce taxes. Now the market is expecting a strong US economy with any potential Trump presidency,” says Mousina, who expects Trump to use the threat of tariffs to negotiate favourable deals for the US should he win.
It’s worth noting last time Trump was US president in 2018 the global share market fell about 15 per cent. Although simultaneously, the US Federal Reserve raised interest rates and Trump introduced trade restrictions around Chinese imports, themes which played out in financial markets.
“This time around Trump is campaigning on extending corporate and personal tax cuts due to end this year,” says Mousina, who expects this to support markets.
She notes the Biden administration has in many cases extended Trump’s policies, in some instances even strengthening them, for instance with imported electric vehicles.
Another concern is if bond markets finally get fed up with persistent US budget deficits.
“There’s a risk of a bond market backlash of the type the UK saw under Liz Truss If Trump decides to slash taxes and widen the budget deficit,” says Bassanese.
Overall, Mousina notes whoever becomes the next US president will have to address systemic problems around the cost of living. “There are so many issues that need to be resolved in the US.”
Bassanese describes life under the Democrats as a less riskier world.
“We’ll see more of a steadier ship in terms of policy changes," he adds.
"It'll be a continuation of the Biden approach to policy. This would pose fewer risks to our market.”
He notes the US green energy sector has enjoyed substantial subsidies under the current administration. This might be a negative for our renewable sector should the Democrats get in again.
“That policy might be pursued further with Harris and attract investment that might otherwise be directed at Australia.”
Turning to geopolitics, Bassanese expects the AUKUS deal to remain in place no matter the outcome of this year’s US election.
“I don't think the US would want to review that deal. But more things are going to be under review in a Trump presidency than under Harris.”
