As the U.S. presidential race approaches the final hours, Republican candidate Donald Trump remains slightly ahead in most polls, yet the race remains a toss-up. Traditional polling indicates a narrow gap between the candidates, while prediction markets show higher bets on a Trump victory. However, neither candidate currently has a clear path to the 270 electoral votes required to win.
While certain states are expected to favor one candidate, the outcome will largely hinge on pivotal “swing states.” A weekend poll indicated that Democratic candidate Harris has gained momentum in several of these states, leading to a reduction in Trump's odds. On Polymarket and similar platforms, bets favoring Trump had consistently been at or above 60% until last week, but have since dropped below this threshold. Still, Trump’s odds remain above 50% across all prediction markets.
Another crucial factor in these elections will be which party secures control of Congress. Post-election scenarios will vary significantly depending on both the White House winner and which party holds congressional power, as this will shape many key policy decisions.
Both candidates have committed to distinct agendas throughout their campaigns, meaning the election’s outcome will have unique implications for global markets depending on who prevails. Therefore, traders are bracing for a potentially volatile period in the days ahead.
Tariffs, Tax Cuts, and Trade Policies: Trump and Harris Outline Economic Plans
A series of polls released on Sunday indicated that the economy remains the top priority for voters. According to a Bloomberg poll, approximately 50% of voters in swing states trust Trump more to manage the U.S. economy, while Harris holds a trust rate of 45%.
The core of Trump’s campaign is focused on reducing income taxes. He plans to offset the revenue loss through tariffs on imported goods, especially those from China. Trump has proposed minimum tariffs between 10% and 20% for all imports and suggests a rate of 60% or higher for goods from China.
Bloomberg Economics estimates that a 20% tariff, with retaliation solely from China, would decrease U.S. GDP by 0.8% and raise inflation by 4.3% by 2028. However, if all trade partners retaliate, the impact on growth could deepen with a 1.3% decline, though the inflationary effect might be limited to only 0.5%.
On the other hand, Harris has pledged to extend the tax cuts implemented by Trump in 2017 but only for those earning less than $400,000. Regarding foreign trade policies, she has signaled her intention to continue the Biden administration’s policies.
Fiscal Deficit Concerns: Trump’s Tax Cuts vs. Harris’s Moderate Approach
A Bloomberg poll suggested that, regardless of the winning side, expectations are that fiscal deficits in the U.S. will increase after the election, subsequently driving inflation higher. The inflation outlook is similar, but under a Trump administration, deficits are projected to nearly double.
According to Bloomberg Economics' estimates, Trump’s tax cuts could raise U.S. debt to 116% of GDP by 2028, already nearing 99% today. Even under Harris's relatively moderate policies, this ratio is expected to reach 109%.
In conclusion, as fiscal deficits grow, this would likely bring higher interest rates, which justifies the recent rise in U.S. Treasury yields in the final stretch.
Contrasting Paths: Trump and Harris Outline Opposing Stances on Energy and Immigration
When we look at the candidates’ statements on other policies, significant differences are also evident. Trump summarizes his energy policy with the phrase, “drill, baby, drill.” The Republican candidate has stated he would end the green energy subsidies implemented under the Biden administration, promising to reduce regulations on oil, natural gas, and coal production and open more federal land for their extraction. Trump’s goal is to lower energy costs. In contrast, Harris, while also pledging to reduce household energy costs, is committed to the transition to clean energy and is determined to combat the climate crisis.
Meanwhile, Trump has pledged the largest deportation of undocumented immigrants in history, a move economists warn could disrupt the U.S. labor market. Harris, however, proposes far more modest steps on this issue, promising to reinstate legislation aimed at limiting illegal border crossings.
In conclusion, both candidates propose distinctly different policy directions. Given the U.S.’s influence, the chosen policies will impact not only the American economy but also global economies. Financial markets, on the other hand, may react differently depending on the policy scenario.
Economic Impact of Trump vs. Harris: A Look at Key Election Scenarios
Let's consider the first scenario where Trump wins the presidency, and Republicans secure the majority in Congress. A Republican majority in Congress would ease Trump’s ability to implement his proposed policy changes, increasing the likelihood of enacting his campaign promises.
With his tax and tariff policies, an expansive fiscal approach would likely limit the Federal Reserve's room for rate cuts. This would result in higher interest rates in the U.S., strengthening the dollar.
In this case, risk appetite in emerging markets might decrease, potentially triggering capital outflows. The expected high tariffs on China would deal a significant blow to its trade, though markets like India, which could serve as alternatives to China, may benefit.
Meanwhile, considering the likelihood of rising tariffs leading to higher inflation, a strong Republican victory is anticipated to drive precious metals higher.
The second scenario envisions Trump as president, but with Democrats holding the majority in Congress. This scenario adds an element of uncertainty. Trump may be unable to implement high tariffs without Congressional approval, which could theoretically temper the effects of the “Trump trade.” However, the uncertain environment would likely increase market volatility, potentially still resulting in a strong dollar.
Moving to scenarios involving a Harris victory, let’s examine a situation where Harris wins the presidency, and Democrats gain the majority in Congress. The prevailing view in global markets is that Trump represents turmoil, while Harris signifies stability.
In this scenario, tariff hikes are not anticipated, which would be positive news for emerging markets, especially China’s economy. Additionally, under a Harris administration, fiscal deficits are expected to increase at a more moderate pace, allowing the Fed more room for rate cuts.
Even if global central banks continue their easing cycle, a decline in U.S. yields would not trigger a distorted capital flow toward the dollar. Consequently, a weaker dollar and a rise in risk appetite toward emerging markets might be observed.
On the other hand, if Harris wins the presidency but Republicans hold Congress, this scenario is likely seen as a continuation of the status quo, with no extreme market reactions expected.
Conclusion
In conclusion, the outcome of the U.S. election has become akin to a coin toss, with a wide range of potential outcomes. However, there’s one more possibility to consider: a very close result, leading to a period of instability and contention, as seen in the 2000 or 2020 elections. Some market observers suggest that vote counting could take a long time, and it may take several days to know the final result.
Later in the day, as votes begin to be counted, traders will be closely watching the results from swing states. The ongoing tally could shape market pricing as the picture becomes clearer. In a situation where uncertainty rises, flows into safe-haven assets are likely to increase.