National security gives the president some scope to impose tariffs without approval from Congress, as Trump did on aluminium and steel in 2018, but it also seems likely that Trump’s more aggressive trade proposals are conceived as a starting point for negotiation. While the destination is uncertain, the direction is clear.
Goldman Sachs economists have estimated that Trump’s 2018-19 tariffs raised prices across a basket of affected goods by more than 3 per cent.
The bank estimates that a 20 per cent tariff on goods from China would delay getting to 2 per cent inflation by around 18 months, while a broad 10 per cent tariff would cause a re-acceleration toward 3 per cent, peaking in summer 2026.
On regulation, we see two areas of importance for markets: anti-trust policy and the permitting process.
It is expected that a Harris administration would be broadly consistent with Biden’s on both fronts.
The current anti-trust approach has been characterised by novel efforts to block mergers and potentially break up companies.
There seems to be a broad attitude of fighting 'bigness'. For the permitting process – critical to adding new capacity in the manufacturing, energy and power sectors – we see little change in an area that has been a frustrating topic for private sector operators.
Trump is perceived as more business-friendly, less resistant to M&A and more laissez-faire on regulation, particularly the federal permitting processes for energy and infrastructure projects.
Divided government?
While there is always anxiety in markets when change is coming, either way there will be a different person occupying the White House. We do not see a high probability of either candidate’s more extreme proposals becoming law.
We think it is likely we will see a divided government, with the Democrats retaining the House of Representatives and the Republicans taking the Senate. As a result, Congress is likely to apply its reins to whoever wins the presidency.
Debt and deficits
Perhaps most importantly, neither candidate appears willing to address the US debt sustainability issue. There seems to be little appetite to cut defence or entitlements spending – two of the three biggest elements of the federal budget, interest expense being the other.
The Penn Wharton Budget Model garnered a lot of attention with its estimate that Harris’s tax and spending proposals would add $2tn to primary deficits, cumulatively, over the next decade, while Trump’s proposals would add just over $4tn.
Economists’ projections show only a modest difference in the deficit under each candidate over the next five years.
