The US election rematch between President Biden and former President Trump will focus market attention on their respective agendas. This paper examines the potential economic and foreign policy changes that could emerge in their second term, as well as the repercussions for financial markets.
- A second term for President Joe Biden will see the US continue to be deeply involved in geopolitical hotspots, while pressuring allies to share the burden. Foreign policy under Donald Trump may be less predictable, with intensified economic sanctions and a less certain commitment to allies.
- Protectionist trade policies would be pursued by both candidates. Biden may expand the range of targets, while Trump’s desire to protect core US industries could lead to trade conflicts with allies in Europe and Asia.
- Tax policy will be a key issue, with neither candidate proposing a clear path to US debt sustainability. Trump will prioritise extending his 2017 Tax Cuts and Jobs Act, while Biden will seek to cut taxes for low-to-middle-income earners and raise taxes for high-income earners and corporates.
- Immigration remains a politically-charged issue, with both candidates expected to implement stricter policies, although Trump’s threats to deport undocumented immigrants will have a strong adverse effect as it will affect labour supply and wages.
- US energy policy will prioritise self-sufficiency and domestic oil and gas under Trump, while Biden would continue to support clean energy initiatives.
- Equity markets may perform better under a divided government, as contentious tax increases and aggressive trade policies are less likely to be implemented. Both agendas could lead to higher deficits that will push up debt and Treasury yields.
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