Politics tend to shape markets these days rather than vice versa, and politics loom especially large this year. Roughly half the world’s population will go to the polls, but the US presidential and congressional elections in November are likely to be the most consequential for the world, particularly at a time of heightened geopolitical tensions from Ukraine to the Middle East to Taiwan and North Korea.
We convened a group of senior leaders recently to consider the global implications of the US elections. Charles Myers, Chairman and Founder of macro-political consultancy Signum Global Advisors, shared insights shaped by decades of experience working on Wall Street and advising American political candidates, including Joe Biden on his 2020 presidential campaign. Here are some of our key takeaways:
- This election campaign combines the familiar with the extraordinary. Barring something dramatic, we are looking at a rematch between President Biden and his predecessor, Donald Trump. Both have been in the public eye for half a century and opinions of them are well formed. At 81, Biden is the oldest person to hold the presidency while Trump is seeking to become the first defeated former president to return to the White House since Grover Cleveland in 1892. He’s also facing 91 criminal indictments, including charges of conspiring to defraud the United States and obstruct the certification of the 2020 election. Those charges have buttressed his support within the Republican Party but alienated many independents. A felony conviction wouldn’t force Trump to drop out (Socialist Eugene Debs won 3% of the vote in 1920 while serving a prison sentence for sedition), but it would prevent him from voting in his home state of Florida.
- Keep your eyes on a handful of key states, turnout – and the vice-presidential candidates. Recent presidential elections in a polarized America have come down to a handful of states, and Charles believes five will determine the 2024 outcome: Wisconsin, Michigan, Pennsylvania, Georgia, and Arizona. Trump swept all five to defeat Hillary Clinton in 2016 while Biden captured them all in 2020. The result also is likely to hinge on which side can persuade its base to actually turn out and vote. Biden’s age might dampen Democratic turnout, especially among young voters, but Democrats have campaigned on reproductive freedom to win several special elections since the Supreme Court overturned the right to an abortion in 2022. Turnout explains why Biden is sticking with Vice President Kamala Harris despite her weak poll numbers. She is a staunch defender of reproductive rights and enjoys strong support among Democrats and black voters. And given Biden’s age, Charles reckons Harris has a 65% chance of finishing his term as president if he’s re-elected. His advice to clients: “Try to get to know her.” On the Republican side, Trump has disparaged his remaining challenger, former South Carolina Governor Nikki Haley, but she is the potential running mate that worries the Biden camp most, Charles said.
- The US economy appears poised to do well whoever wins. A re-elected Trump would likely pursue a more pro-business agenda of deregulation and lower taxes than Biden but would not radically reorient policy. Financial services could expect a lighter regulatory touch from Washington and the oil and gas industry stands to be a big beneficiary as Trump has campaigned for more drilling, new pipelines, and an easing of environmental regulations. That said, US energy production has been on a secular uptrend for 15 years, with oil and gas output hitting record highs under Biden. But don’t expect a Trump 2.0 to tear down Biden’s Inflation Reduction Act; most of its clean energy incentives are going to Republican-led states. There is a question of whether more stimulus from Washington could be sustained long-term without igniting inflation or hurting the dollar, but for the moment the US economic outlook is as bright as Friday’s robust employment data.
- The biggest differences – and potential consequences for countries around the world – lie in foreign policy. Biden won in 2020 by promising to rebuild America’s alliances while Trump routinely criticizes NATO allies at campaign appearances, as he did during his presidency, and questions US support for Ukraine. It’s not clear whether his rhetoric signals a tougher stance toward allies if he wins, but Congress was concerned enough in December to pass a law preventing any president from pulling out of NATO without Congressional approval. Trump has been more explicit on trade, promising to slap 10% tariffs on all goods imports and levies of up to 60% on Chinese goods.
- These factors add up to uncertainty but probably not unrest. Betting markets currently put the odds of a Trump victory at around 60% and the consensus at Davos last month was very much in his favor, but both have poor records of calling events 10 months in advance. Charles’s base case is that Biden will be re-elected alongside a divided Congress, with Democrats retaking the House and Republicans winning the Senate. If recent history is any guide, we may not know the outcome when we wake up on Wednesday, November 6, and the result may well be contested, but we are unlikely to see a repeat of the Jan. 6, 2021, Capitol riot. Law enforcement will be on the lookout for any security threats.