U.S. Election Outlook

Authored by: Joshua Mann, Marcel Maryniak and Edwin Ivanescu

The U.S. presidential elections play a critical role not only in shaping the nation's political landscape but also in influencing significant economic outcomes. Each election cycle brings to the forefront varying policy proposals on key issues that directly impact the economy, such as employment, national debt, and growth across critical sectors. This report will delve into these three areas to analyse how differing policies of the major political parties might shape the U.S. economic landscape. By examining party positions on employment strategies, national debt management, and sectoral policies, we aim to provide a thorough outlook on the potential economic and investment implications of election outcomes.

The Job Market

Kamala Harris has suggested increasing the federal minimum wage to at least $15 per hour, just after Donald Trump dodged a question about his plans for minimum wage. The federal minimum wage in the US is $7.25 per hour and has been since 2009.

U.S. unemployment hit a 50-year low in January when it reached just 3.4% but has since increased to 4.3%. Raising the minimum wage could amplify unemployment rates and slow down the economy. Looking back to when Joe Biden first took office, there was an attempt to increase the federal minimum wage to $15 per hour, which was later halted by the Senate. While this proposal would have raised wages for millions of people and lifted approximately 900,000 individuals out of poverty, the Congressional Budget Office estimated it could lower employment by 1.4 million jobs and increase the federal budget deficit by $54 billion over the decade.

Trump has also proposed increased tariffs on imports. He has threatened to levy a 20% tariff on all foreign imported products. Tariffs have the potential to increase the levels of employment in the country, especially in industries such as steel or car manufacturing. Tariffs will increase the prices for goods and services produced outside of the U.S., leading to an increase in demand for domestically produced goods. Since domestic suppliers need to produce more, there will be more employment in the economy. On the other hand, tariffs will increase the prices of foreign goods consumed domestically which may lead to higher inflation rates. This may have knock-on effects such as a wage-price spiral causing the U.S. government to implement contractionary policies bringing employment back to pre-tariff levels. This means that the effect of the tariffs on employment isn’t as good as it seems.?

Harris proposed using tax credits to affect the job market. The Democrat aims to increase employment levels by offering child tax credits of up to $6,000 to families of newborn children, as an incentive for parents of children to return to the labour force. This would increase the number of participants in the labour market and reduce worker turnover rates as people are less likely to quit jobs.

Election Promises and Government Spending

Harris envisions a strategy to tackle long-term economic concerns by focusing on lowering living costs for Americans. Her approach emphasises broad access to affordable housing and healthy food, aiming to curb rising living expenses. One cornerstone of her policy is enabling Medicare to directly negotiate drug prices, addressing high healthcare costs. Harris’s proposal to continue Biden’s administration policy for student loan forgiveness also targets substantial debt relief for millions, potentially reducing financial burdens on households, though it could increase short-term government spending. While her strategy carries upfront costs, she views these as investments to foster economic stability over time.

Trump’s policy proposals focus on reducing taxes and cutting government spending. His campaign calls for lowered taxes and the strategic use of tariffs, to counter inflation and protect American industries, especially against Chinese products. Trump has expressed support for using tariffs as a way to “rapidly defeat inflation,” a point he emphasized at both the Wisconsin rally and the Economic Club of New York, with the aim of retaining manufacturing jobs in the U.S. However, his commitment to lower taxes and reduced government spending stands in sharp contrast to Harris’s expansionary spending plans. His approach leans toward an aggressive ’America First’ strategy, aiming to curb national debt growth through restrained domestic spending.

Tax Policies and Deficit Management

Harris advocates for a different tax strategy to Trump, suggesting that increased taxes on corporations and the highest earners could generate revenue without affecting Americans earning less than $400,000. By reinstating payroll taxes on income above $400,000, Harris aims to strengthen Social Security and Medicare, offsetting these programs’ drain on the national debt. Her plans also include funding for defence, with a proposed 4.1% increase. While Harris’s tax policy targets the ‘well off’, her commitment to student debt cancellation would entail a significant expenditure, which, though supportive of debt-ridden citizens, may add to the already problematic national debt short-term.

Trump’s tax policies aim to reduce corporate taxes further, particularly for companies manufacturing in the U.S., which aligns with his protectionist approach. He has explicitly ruled out cuts to Social Security and Medicare, the largest components of the national debt. Trump’s proposed cuts to domestic spending reflect his stance on minimising government intervention in the economy, which he argues is necessary due to “excessive spending.” While such cuts could slow debt accumulation, his protection of Social Security and Medicare, combined with a reduced corporate tax rate, may challenge deficit reduction efforts without significant economic growth.

Monetary Policy

Harris’s stance suggests a more progressive approach, favouring tariffs on Chinese imports and increased corporate taxes. Her economic vision also supports appointing liberal-leaning Federal Reserve officials, which could steer the Fed towards progressive monetary policies. Her proposal for a steep corporate tax rise to 35% marks a significant increase that could shape Federal Reserve decisions, particularly concerning inflation and interest rates, in response to potential shifts in consumer and investor behaviour.

Trump has pledged an aggressive 10% tariff on all imports and a 60% tariff on Chinese goods, intending to make foreign goods more expensive and thereby encourage domestic production. His pledge to lower corporate taxes to 15% represents his “America First” strategy, directly linking fiscal policy to his vision of economic nationalism. Critics argue that his approach could lead to inflation spikes, with EY Chief Economist Gregory Daco stating “US real GDP growth would be reduced by 1.2pp in both 2025 and 2026” ("2025 and Beyond: Trade Policy").

Growth Sectors

Depending on the election outcome, different sectors may experience growth. A Republican victory could benefit Wall Street banks — including JPMorgan, Bank of America, and Wells Fargo—through increased domestic investment due to looser regulations, job creation, and tax cuts. Investors who anticipate this scenario might take interest in financial sector ETFs, such as the iShares U.S. Financial Services ETF (IYG), which focuses on major U.S. financial services companies.

However, Trump stated his plans to impose tariffs on imported goods. This could have negative effects on the GDP growth of both the US, China and the European Union, a study found that tariffs could lead to a reduction in gross domestic product in the United States by -0.64%, China by -0.68%, and the European Union by a more modest reduction of -0.11% (LSE).?

Daniela Hathorn, senior market analyst at Capital.com, said, "Trump's support for fossil fuel industries could benefit oil and gas stocks, as he would likely pursue policies that favour domestic energy production." This contrasts sharply with the approach that Harris is likely to take, as some of her key objectives include reaching 100% renewable power generation by 2035 and achieving a net-zero emissions economy by 2050 . As such it would make sense for her policies to facilitate growth in green energy companies. It is important to note that she also aims to maintain energy security, so the transition may be gradual, and any returns on green stocks could be slower as a result.?For investors looking for exposure to energy sector, the iShares U.S. Energy ETF (IYE) may be worth looking into.

One of Harris’ key focuses on the campaign is healthcare, mainly reducing healthcare costs. A proposed way of doing this is through price caps on some prescription drugs such as a $35 cap on insulin. With further policy implementations like this the US pharma giants such as Pfizer and Eli Lilly could be at risk of having their profit margins eaten into.

Bottom-line

When it comes to the national debt, both Harris and Trump bring distinct visions to the discussion. Harris’ proposals rely on social spending to drive long-term cost reduction, while Trump’s policies aim for swift, cost-saving fiscal protectionism. This contrast highlights their different outlooks on economic growth and debt management in the U.S. In conclusion, the exciting run-up to the elections has increased investor skepticism, with many voicing their concerning views of uncertainty regarding the future of the American Economy, making this election one of the most anticipated in recent decades.

Disclaimer!

Please be advised that EUTIC does not provide formal investment advice and is not a licensed financial adviser. The content we produce is intended solely for educational purposes, aimed at individuals interested in markets and economic trends. Any information provided should not be construed as financial advice or a recommendation for any particular investment strategy.

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