US elections: what Trump and Harris stand for, and implications for markets

With less than a week to go before the vote, Brian Daingerfield discusses four possible outcomes in the US election – and the potential impact on the policy and market landscape.

31 Oct 2024 . 5 min read

What are the policy stances of the two candidates for president and how might the market react to different election outcomes?

There are some stark policy differences between the two candidates for president.

From a fiscal perspective, for example, a Harris victory could herald higher green and social spending, which could be partially offset by higher taxes on corporations and the wealthy. Trump, by contrast, could usher in a significant expansion of deficits via extension and expansion of his landmark 2017 tax cuts (though extension of some of the provisions of these tax cuts is also sought after by Democrats and would be pursued).

There are also big implications for environmental policy. A Trump administration would probably help the fossil fuel industry to increase production, roll back regulation on the environment and scale down the current incentives for renewable energy in the Inflation Reduction Act.

When it comes to foreign policy, we think Harris would essentially continue with Biden’s policies, whereas Trump would probably return to his transactional, America First approach, with increased pressure on the US’s NATO allies and reduced US support for Ukraine. Both candidates would probably maintain a protectionist trade stance, although under Trump there would be increased risk of broad tariff and trade wars, particularly with China. Harris would probably be more selective when implementing tariffs.

Trump and Harris policy stances: a summary

Market implications

When considering what the election results might mean for the markets, we need to consider not just who wins the presidency, but also who wins the House and the Senate, because it’s generally more difficult for a president to pass legislation if their party isn’t in control of both chambers.

The Senate election outlook is favourable to Republicans this cycle, and as a result we see a Harris victory as more likely to come with divided government while Trump may be more likely to win with a sweep. That could give Trump greater legislative leeway relative to Harris.

A divided government would probably result in lower US Treasury yields and flatter curves as more extreme fiscal scenarios, particularly those possible under a united Republican government, are priced out. A united Republican government could usher in significant new fiscal stimulus via tax cuts against minimal planned revenue offsets, resulting in steeper curves and higher long-term rates.

We see a Trump presidency as likelier to result in a stronger US dollar due to the possibility of greater fiscal stimulus and a return to an America-First-style trade and foreign policy that could prove inflationary. We think Trump’s policies support a stronger USD. But a potential risk here is that Trump may want a weaker US dollar and lower rates, and Trump could consider a more direct approach to weaken the USD.

NatWest’s expected market reactions to the various US election scenarios

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