Trump vs. Biden Harris
A change in the Democratic ticket for president makes the election more dynamic, but it doesn’t change much in real policy terms. In the policy areas with biggest stakes for investors– tax, immigration, trade and industrial policy – the Democrats’ approach will be the same. Our strongest conviction is that markets are driven by real policy change – not politics. That means any re-pricing in financial markets associated with Kamala Harris entering the race will be about the shifting likelihood of a Republican or Democratic win – not about the differences between Harris and Biden.
What matters to investors in this election
Tax policy: The expiration of the Trump tax cuts at the end of next year means new tax legislation is expected. Trump wants to extend the tax cuts while Biden’s plan included raising the top tax rate and imposing new taxes.
Immigration policy: Immigration was a major force in the economic recovery, according to the Congressional Budget Office and Fed, but the surge at the southern border has put immigration front and center. The large increase in immigration in the last couple of years has become very visible to voters, and so both candidates are likely to try and reduce immigration in total. Their approach is different: Trump wants to close the border and deport undocumented immigrants; Harris would likely attempt passing legislation through Congress.
Given the extreme rhetoric around this issue, policy stagnation is also a risk. In his first term, Trump caused a government shutdown over the construction of a border wall.
Trade policy: Gone are the free-trade policies of the past – both Trump and Biden demonstrated a shift in U.S. trade policy. Still, the approaches to de-globalization are different, and this is one of the policy areas we see having the most impact on markets because some measures (tariffs) can be carried out without Congress.
As far as approach: Trump wants to reduce trade deficits; Biden sought to protect key U.S. industries. It should be said that although Trump and Biden/Harris hold different views on trade, the end result – “tough on China”, less free trade – is similar. That is because both Democrats and Republicans view China as a strategic adversary and favor tariffs (on imports from China) to protect U.S. industry.
Industrial policy: Trump is for deregulation while Democrats support regulation and spending to strengthen key U.S. supply chains. Both can be effective at supporting the economy and markets, and investors should be aware of what could change.
Putting it all together
For investors concerned about the election, we believe it’s important they keep in mind 1) the policy areas that could most impact the economy and markets and 2) how far apart the candidates stand in each of those areas. Below we visualize the distance of the candidates’ positions. Note that in the four policy areas, we see no difference between Biden and Harris, but meaningful distance between Trump and Harris. Immigration is where the candidates are furthest apart and their parties with them. As mentioned above, we expect this could create issues for the next Congress, especially if there is only a slim majority.
It’s also important to remember that what we’ve outlined here are the candidates’ proposals. In most cases, the makeup of Congress in addition to many other factors determine which policies are actually enacted. The differences between Trump and Harris below assume his/her party has a majority in both houses of Congress. However, a split Congress would result in a less extreme distance between the two as some compromise may be necessary to pass legislation.
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