Expect anti-growth policies whoever wins the US election

The result may be too close to call, but both Kamala Harris and Donald Trump are proposing measures that could damage the US economy, says Kallum Pickering

As America heads to the polls today, markets are still guessing about who will win.

Last week, it looked like Republican candidate Donald Trump had nosed ahead. But polling over the weekend, including the closely watched Des Moines Register/Mediacom Iowa poll, suggested Democrat candidate Vice President Kamala Harris may have the final edge.

If voting is as close as the polls suggest, it may be days before we know the result. Following the 3 November 2020 election, it took US TV networks four days to call the result in favour of Democrat Joe Biden.

If the election is contested, which occurs when the loser challenges the validity of the outcome, a clear result could be weeks away.

Resolving contested elections is a messy and drawn-out process that creates incentives for candidates to fight the election even after voting is over.

The last time it happened was in 2000 when, after more than a month of uncertainty following election day on 7 November, Democrat Al Gore conceded to Republican candidate George Bush Jr on 13 December.

Whatever the final result, the potential for a major change in the US policy direction looms large.

Although there is little policy overlap between Harris and Trump, both candidates propose a series of anti-growth measures that, if implemented, could damage the US.

Harris’ plans for higher taxes, spending and regulations are an expanded version of the Biden administration’s platform. However, her flirtation with price controls, higher corporation taxes, and even a tax on unrealized capital gains represent a lurch to the left.

Harris’ policies could impede private sector dynamism, harm profits and investment and threaten a rout in US equities.

Trump’s plans for lower taxes and spending controls are standardly Republican. However, he departs from his party’s typical line with proposals for large import tariffs and immigration curbs.

Tariffs would push US consumer prices up and reduce household real income. Aggressive immigration controls would harm employment growth. In that context, it is an open question whether less regulation and lower corporate taxes could boost stock markets.

Ballooning deficit spending

Critically, neither candidate proposes a serious plan to reduce ballooning deficit spending or the ever-rising stock of public debt – both of which present risks to US economic and financial stability.

On foreign policy, whereas Harris would probably stick with the long-established convention of working with allies through the normal channels to resolve ongoing conflicts in Eastern Europe and the Middle East, and to manage relations with China, Trump is a wildcard. His ‘America first’ approach would be unpredictable.

While congressional checks and balances are not automatic, in case the election results in a mixed Congress, the next President would face an uphill struggle to pass any legislation that could not be done via executive order alone.

The outcome of the congressional elections thus matters almost as much as the race for the White House.

Presidents require Congress for tax and spending policy and for the approval of key appointments – which may be important when current Federal Reserve chair Jerome Powell’s term ends in 2026.

Still, presidents have a great deal of autonomy over trade policy and regulations. During his first presidency from 2017-2021 Trump enacted trade tariffs via executive order.

The overall negative policy thrust of both candidates’ proposals would likely contribute to a weaker dollar on trend. In the case of Trump, however, a weaker dollar could come after some initial strength in response to a spike in uncertainty.

Risks abound. The US remains the most systemically important global economy and a worrying lurch to more radical policies is the major risk to global financial markets heading into 2025.

Kallum Pickering is chief economist at Peel Hunt