UBS Addresses 24 Questions Regarding the 2024 US Elections

With less than eight weeks remaining until Election Day, the contest between Vice President Kamala Harris and former President Donald Trump remains intensely competitive.

This race, defined by sharp differences in policy and approach, focuses on seven critical swing states. The outcome in these states, already flooded with advertisements and extensive campaigns, will likely decide the next President.

Voters and investors are particularly concerned about the state of the federal budget. Analysts indicate that the election results are unlikely to resolve ongoing budgetary imbalances. Both Republicans and Democrats recognize the unsustainability of current public finances but disagree on how to tackle the issue. Republicans typically advocate for spending cuts, while Democrats tend to favor increasing revenue. Unfortunately, neither approach is expected to lead to a balanced budget, especially considering the political divisions in Congress.

Moreover, discussions surrounding the fiscal year 2025 budget and the upcoming debt ceiling are set to complicate matters, irrespective of the election outcome. The potential for a government shutdown and the reinstatement of the federal debt limit in early 2025 present risks of financial instability. Historically, divided governments struggle to reach consensus on such issues, often resulting in last-minute compromises.

The role of the Federal Reserve in this election year is also under scrutiny. Although it is claimed that political considerations do not influence monetary policy, it has been noted that the Fed has adjusted interest rates during 11 out of the last 12 election cycles. While these adjustments might not consistently affect election results, market reactions to policy changes are expected.

Recent Supreme Court decisions have altered the regulatory landscape, limiting the capacity of federal agencies to interpret ambiguous laws. This shift could introduce uncertainty in various sectors, from healthcare to energy, as businesses navigate the potential for deregulation or increased oversight depending on the election’s outcome.

Energy policy is a key issue, particularly with the Inflation Reduction Act (IRA) of 2022, which represents the largest investment in clean energy in the US. A Harris administration would likely uphold the IRA’s provisions, while a Trump administration might seek to reduce or modify its focus, particularly regarding electric vehicle incentives. Nevertheless, even in a scenario with significant Republican victories, a complete reversal of the IRA is unlikely due to the rising significance of renewable energy in pivotal Republican districts.

On trade policy, the power of the president to impose tariffs with minimal limitations is emphasized. Both Harris and Trump are anticipated to leverage tariffs as a foreign policy tool, although Trump would likely do so more extensively. While tariffs can be effective in specific instances, they can also have inflationary effects and disrupt global supply chains, posing additional challenges for businesses and consumers.

Foreign policy concerns extend beyond trade, particularly regarding the president’s authority to withdraw from international treaties or deploy military forces without Congressional approval. Although Congress has significant control over treaty negotiations and war declarations, recent administrations have often acted with broad discretion in foreign matters. The next president’s stance on these issues will significantly impact global relationships and military engagements.

Domestically, immigration policy has emerged as a prominent campaign topic, with Trump pledging a large-scale deportation initiative. Despite the executive branch’s considerable authority in this area, practical challenges such as resource constraints may hinder full implementation of such efforts.

The balance of power in Congress will also be crucial in shaping post-election policy. Key Senate races in states like Montana, Ohio, and Pennsylvania will influence whether Democrats or Republicans gain control of the upper chamber, while House races in districts won by Biden in 2020 remain highly competitive. A divided Congress might limit either party’s capacity to implement significant legislative changes, regardless of who secures the presidency.

Polling accuracy has generated much debate following the unexpected outcomes in the 2016 and 2020 elections. While adjustments have been made by pollsters, public trust in polling remains low, particularly with Trump as a candidate. Although polling accuracy has typically been more reliable in midterm elections, the unique dynamics of a presidential race may present new challenges.

Concerns regarding election security, especially related to mail-in ballots, persist. Although mail-in voting is a longstanding practice and generally secure, with very few documented instances of fraud, the timely delivery of ballots and the verification processes will be critical for ensuring a fair and transparent election.

The potential impact of third-party candidates, although historically limited, is also a consideration. Notable third-party figures in the past, like Ralph Nader and Ross Perot, influenced previous elections, but the withdrawal of Robert F. Kennedy Jr. from the 2024 race is unlikely to significantly affect the outcome.

Another unique aspect of the US electoral system is the Electoral College. While this system was created to balance interests between smaller and larger states, its continued existence ignites debate. If no candidate achieves the necessary 270 electoral votes, the decision would shift to the House of Representatives, where each state delegation casts a single vote, potentially complicating the electoral process.

While elections can cause short-term volatility, long-term trends indicate that political party affiliation generally does not have a substantial impact on market performance. However, specific sectors may see different outcomes. For instance, a Trump presidency would likely favor fossil fuel companies, whereas a Harris administration could emphasize renewable energy initiatives. The financial services industry might benefit from a Trump presidency due to lighter regulatory oversight, whereas a Harris administration might impose stricter regulations, particularly in consumer protection and banking consolidation.

The technology sector is set to remain a focal point of geopolitical tensions, especially regarding semiconductor exports. Both candidates are expected to maintain restrictions on technology transfers to China, though details may differ. The technology industry may experience increased volatility, particularly in hardware and semiconductor segments, as supply chains adapt and tariffs are possibly reinstated.

Tax policy represents another significant area of divergence between the candidates. Trump supports making the 2017 tax cuts permanent and further lowering corporate taxes. In contrast, Harris advocates for tax increases on wealthier individuals and corporations. The feasibility of these changes largely depends on Congressional composition, with a divided legislature making substantial tax reform unlikely.

Lastly, concerns about the future of the US dollar are raised. A Harris administration could introduce policies that weaken the dollar, such as higher taxes and increased government spending, while Trump’s trade policies and potential escalating deficits might also pose risks to the dollar in the long term.