Video : Harris vs Trump
Harris vs Trump: The election of the century? In the case of a “divided government,” the elephant will give birth to a mouse. If the Republicans secure a Senate majority and the Democrats hold the House of Representatives, neither Donald Trump nor Kamala Harris will accomplish much in terms of domestic legislation. In foreign policy, however, the new president will retain significant room for manoeuvre. On this front, Harris’s approach to the ongoing US-China split appears far less radical than the isolationism and fragmentation Trump envisions.
Left vs Right
The policies proposed by Harris and Trump share a few commonalities. Both are protectionist – though to varying degrees, as we’ll see shortly. Both also aim to reindustrialise the United States, with the Inflation Reduction Act (IRA) addressing this need. Trump is not entirely on board with the “green” aspects of the IRA, but since the subsidies currently benefit Republican-leaning states the most, it’s a programme he is likely to tolerate. Lastly, neither candidate seems particularly concerned about the growing national debt. The risk of hitting the historic peak of 106% net public debt, as seen after World War II, is extremely high.
Opinion polls predict a divided Congress, with Republicans expected to gain a Senate majority while Democrats hold the House. This scenario leaves little room for major domestic initiatives. Only a sweeping victory by one party would result in significant policy differences at this level.
Harris advocates a “left-wing” agenda aimed at putting money in the pockets of less privileged Americans. Her proposals include increasing child benefits, expanding the housing supply to address shortages and rising house prices, and controlling the costs of basic goods and medications. Harris also plans to raise the corporate tax rate from 21% to 28%, impose higher taxes on share buybacks, and increase levies on capital gains and dividends – a policy unlikely to favour the stock market.
Trump, unsurprisingly, champions a more right-wing programme. This includes further reducing the current corporate tax rate of 21% and fully extending the “Tax Cuts and Jobs Act” he introduced in 2017. The act accelerates investment deductions and lowers inheritance taxes. His programme is more business-friendly and appeals to middle- and upper-middle-class households, though it also includes some benefits for the less well-off. However, this would mean that net spending under Trump would be even higher than under Harris.
In scenarios of total victory for either party, we estimate additional growth of 0.2% per year under the Republicans, compared to just under 0.1% per year under the Democrats. A Republican win would give a boost to the stock market. In both scenarios, increased spending’s positive effect on growth would slightly raise US interest rates and the dollar. That said, the impact on the dollar could escalate sharply if Trump moves to increase tariffs.
Bifurcation vs Fragmentation
Trump has proposed a 10% import tax on all industrialised nations and a 60% tariff on Chinese goods. He could implement this via a presidential executive order, bypassing Congressional approval. Such a move would likely trigger a massive inflationary shock, a serious self-inflicted wound for the US economy. Even more damaging would be the policy’s impact on globalisation, which has delivered significant prosperity over recent decades.
This brings us to the most significant geopolitical consequence of this election. Globally, the choice is between bifurcation and fragmentation.
If Kamala Harris becomes president, the gradual division of the world between China and the US will simply continue. The United States will deny China access to key technologies, while China restricts exports of essential raw materials, for example. Ultimately, the rest of the world may be forced to choose sides.
If Donald Trump becomes president, fragmentation is on the horizon. His “America First” policy signals isolationism reminiscent of the pre-World War II era, potentially ending 80 years of Pax Americana – a period of relative international peace. Such a shift would deliver a massive shock to Europe, but it could also be the wake-up call the continent needs to become more unified and competitive.