US Elections. What to expect in economic terms from each of the candidates in the US elections

If the US moves towards a protectionist policy for its economy, Europe could tremble. Controlling the budget deficit and inflation are seen as priorities for the next president. 

Taxes, international trade, housing and social benefits are some of the issues that distinguish the candidates for the White House. Economists are divided on which will be the best election result in economic terms. Vítor Madeira, an analyst at XTB, believes that "any outcome of the elections should not affect the country aggressively in economic terms, but may only influence certain specific areas”, adding that we have seen a hegemony in the US economy over time, regardless of who is governing the country. "The environment created over time in terms of economics, bureaucracy, mentality, technological and productive capacity, geography, existing raw materials and military control around the world has meant that the US has remained a world power,” he told our newspaper.

Even so, he says that in domestic terms, according to the forecasts included in Donald Trump's electoral program, "tax cuts could be more beneficial for economic growth, having a greater economic influence in the short term”. 

Paulo Monteiro Rosa, an economist at Banco Carregosa, believes that the best economic outlook generally occurs when the winning candidate manages to balance responsible fiscal policies - reducing the public deficit and promoting investment in infrastructure and innovation - with trade policies that open up the foreign market. And he argues that, in relation to the financial markets and the monetary system, a government that has a constructive relationship with the US Federal Reserve, respecting its independence, "contributes to keeping inflation under control, avoiding financial bubbles in the markets, which is fundamental for sustainable economic growth in the medium and long term”, which leads him to believe that the "combination of political stability, balanced fiscal and trade policies, combined with an infrastructure renewal program, tends to be the most favorable economic scenario after a US presidential election”. 

But what distinguishes them? The economist points out that, as far as taxes are concerned, Trump intends to maintain and expand the 2017 tax cuts (Tax Cuts and Jobs Act), further reducing corporate rates to between 15% and 20%. Kamala Harris, on the other hand, advocates an increase in the tax rate on higher incomes (above 400,000 dollars a year), as well as an increase in capital gains taxes for incomes above one million dollars. This plan aims to raise more revenue from higher incomes to finance social and infrastructure programs. 

In international trade, Trump is proposing a policy of increasing tariffs, including a general tariff of 10% on imports and duties of up to 60% on Chinese products. This strategy could push up the prices of consumer goods. Meanwhile, Harris takes a more conventional approach, with no plans for new tariffs, focusing more on balanced trade negotiations to maintain American competitiveness without direct inflationary pressures. 

As for housing and price controls, Paulo Monteiro Rosa says that Harris proposes measures to control rising house prices and reduce costs for tenants by limiting annual rent increases and promoting incentives for the construction of affordable housing. Meanwhile, Trump does not promote price controls, but supports tax credits that encourage housing development. Regarding social benefits, both candidates support an expansion of the child tax credit, but with different amounts; Harris proposes an annual credit of up to 6,000 dollars for newborns, while Trump advocates a one-time credit of five thousand dollars per child. Such support could help reduce child poverty, especially among low-income families, but it also entails financing challenges that could further aggravate the US budget deficit, especially in the long term. 

Public AccountsVítor Madeira draws attention to the fact that none of the candidates presents a guideline for balancing public accounts in terms of total public debt. "On the one hand, Kamala Harris can increase state spending by implementing policies to increase public spending and subsidies. On the other hand, Donald Trump wants to reduce the tax burden, which would reduce contributions to the state.” She adds that she doesn't think any of these options pose a threat to the US economy, since "it continues to grow significantly and in technological terms it remains one of the most advanced powers in the world, with the capacity to pay off its debt”. 

The economist at Banco Carregosa is less optimistic. Paulo Monteiro Rosa points out that the US continues to have high budget deficits, above 6% of nominal GDP. The ratio of public debt to nominal GDP is 122%. However, the resilient nominal economic growth, currently around 5.5%, still manages to absorb a large part of the current 6.3% deficit. It is historically rare to have such a high deficit in times of economic expansion. "Whichever party forms the next US administration, the government will continue to run high budget deficits. At the very least, the expense associated with an increasingly aging population and its health care, and the growing costs of servicing the debt (interest) make fiscal deficits of around 5 or 6% almost inevitable. What's more, a possible slowdown in the economy, or even recession, would significantly boost the budget deficit to perhaps over 10%, with lower revenues and more spending driven by the automatic stabilizers,” he tells our newspaper. 

He points out that the hypotheses on the table are divided power, where one party controls the White House and the other dominates Congress, or one of the parties, Republican or Democrat, controls both the White House and Congress. "With divided power, if one party wins the White House and the other controls Congress (Senate and House of Representatives), the debt could rise to just over 125% of GDP by 2035. However, the rise in public debt will be much steeper if one party jointly wins the Administration and Congress.” 

In view of the current economic situation in the US, Paulo Monteiro Rosa has chosen the following economic priorities: control of the budget deficit and inflation, social cohesion, fostering innovation and technological competitiveness, improving education and the health of the population. "These initiatives, if well executed, can provide economic stability, strengthening long-term growth and improving US competitiveness on the global stage,” he points out.

What about Europe?

The European economy has always been linked to the American economy. However, the XTB_ analyst notes that the US has changed its vision, defending a self-sufficient stance in relation to other forces. And that this view could deepen in the event of a Donald Trump victory, "who has a desire to protect the US economy, so the implementation of tariffs on imports could have a negative impact on exports from other countries, thus affecting the European economy, either directly or indirectly”. He adds: "When the US economy is in a phase of expansion, the effect has been beneficial for the European economy, so tax reduction policies in the US could have an indirect positive impact on the European economy,” but notes that "given the weakness shown recently by the European economy, the outcome of the result remains very ambiguous.”