We are days away from the US election, and with polls changing every minute, it’s anyone’s guess who will win. Many of our clients are asking us how, if Donald Trump is re-elected, his campaign promises could affect their investments.
Key policy areas that could affect your portfolios
Trade & Tariffs
Trump plans to intensify protectionist measures, proposing tariffs of 10-20% on all imports and 50-60% on imports from China. On the other hand, Harris has not indicated any significant shifts from the current administration’s trade strategies, which primarily kept Trump’s initial tariffs while introducing additional ones.
What this means for Australia
Trump’s tariffs would have little direct consequence for Australia, with only 4% of our exports landing in America. The more significant concern is its direct impact on China, which is already under economic strain. Australia, a major exporter of mining, energy, and agricultural commodities to China, will feel that impact if Chinese demand for Australian exports like iron ore, coal, wine, beef, and lobsters continues to dwindle.
Taxation
Trump has proposed several tax policies, such as extending the 2017 Tax Cuts and Jobs Act changes, reintroducing the deduction for state and local taxes, lowering the corporate tax rate for domestic production, and eliminating green energy tax credits. While some of Trump’s proposals could effectively promote economic growth, others might degrade the tax code’s structure and have a minimal impact on economic growth.
Harris plans to prolong the 2017 tax cuts for individuals earning less than $400,000, increase tax credits for caregiving, and boost the corporate tax rate to 28%. She also intends to raise the capital gains tax rate to 28% for those earning over $1 million and proposes taxing unrealised capital gains. However, legislating increases in corporate and capital gains taxes may prove difficult.
What this means for Australia
Looking at taxation singularly, it appears these would have little effect on Australia’s economy. A victory for Harris would largely maintain current policies unless she succeeds in increasing corporate and capital gains tax rates. In contrast, Trump’s tax cuts and deregulation policies, aimed at enhancing the supply side of the U.S. economy, could potentially increase productivity which may be more positive for the US economy.
Immigration
Immigration saw a significant increase under Biden but has recently been curtailed by Harris, who is likely to continue down this path. Trump intends to pass a highly restrictive immigration policy and execute what he describes as “the largest domestic deportation operation in American history.” Such measures would almost certainly reduce growth in the US labour force, which could also impact business and economic expansion.
What this means for Australia
Again, looking at each candidate’s immigration policies individually, these policies would have little effect on what happens on our shores.
US Federal Reserve
The US Federal Reserve plays a critical role in the global economy, but its policy direction is focused on supporting the US economy. Trump would seek to replace the Chair of the US Federal Reserve, Jerome Powell, and Trump’s supporters are looking at ways to roll back the US Federal Reserve’s independence—meaning its stance on interest rates and inflation could very well change depending on the election results.
What this means for Australia
If the Federal Reserve’s independence is compromised, significant economic repercussions will be felt worldwide, including in Australia. What this amounts to is difficult to determine, but we feel the likelihood of this happening is remote.
So what will change?
Trump’s policies in key areas contrast greatly with Harris’s, and if he were to get them through Congress, they would have significant consequences for the global economy.
Trump’s overall economic strategy, characterised by higher tariffs, deregulation and reduced labour force, may drive up inflation. In fact, a recent pool of economistic found that two thirds believe that inflation would be worse under Trump compared to Harris. His trade policies could increase volatility in global markets and disrupt international trade dynamics, similar to 2018 when Trump’s trade wars contributed to a significant share fall.
With Harris, it’s likely not much will change and not enough to have any major impact on the global and Australian economy.
What does this mean for our investors?
For investors, it’s a good idea prepare for potential shifts in crucial sectors. An administration favouring business could implement market-friendly policies like corporate tax cuts and deregulation, potentially stimulating the equity markets, especially in technology, healthcare, and financial sectors.
On the other hand, a government with a progressive agenda might focus on expanding social programs and infrastructure investments, which could open opportunities in renewable energy, green technologies, and the construction industry.
What does this mean for my portfolio?
Given the potential market volatility surrounding the US elections, it’s essential to remain diversified and agile.
Diversify portfolios: US elections tend to have a ripple effect across global markets, but diversification across asset classes and geographic regions, for instance, can help mitigate risks.
Remember the long game: While elections can introduce short-term volatility, maintaining a long-term investment strategy allows you to weather these temporary disturbances more effectively.
Keep your eye on the money: Changes in the US dollar have significant implications in the currency markets. While this can offer opportunities, it can also adversely affect returns. Employing risk management tools can be crucial in safeguarding against currency risks.
For personalised guidance on adjusting your investment strategy in light of the upcoming US elections, reach out to us at Green Associates Wealth Management. Our experts are ready to help you understand the potential impacts on your portfolio and explore strategic opportunities tailored to your financial goals.