Understanding the Impact of US Election Policies on Investment: What Australians Should Know

As Australians, we often observe global events with keen interest, especially when it comes to economic indicators. The upcoming US election is no exception, as the results may have implications not just for American citizens but also for international investors, including those in Australia. While historically, US election outcomes have not caused long-term shifts in investment markets, it’s worth delving into the policy proposals of the two main candidates—Kamala Harris and Donald Trump—against the backdrop of a massive US budget deficit and a slowing economy.

Fiscal Policy Overview

Kamala Harris

Kamala Harris has proposed a range of policies aimed at supporting middle-class families and stimulating the economy. One of her flagship proposals is a $25,000 tax credit for first-time homeowners. This initiative aims to make housing more accessible, particularly for younger Australians and those entering the market for the first time. Additionally, she has suggested a $6,000 credit for families with newborns, which could alleviate some financial burdens associated with starting a family.

Harris also intends to raise the corporate tax rate from 21% to 28%. This could lead to a more robust revenue stream for the US government but might also prompt concerns among investors about potential impacts on corporate profitability. On the labor front, she has pledged to raise the federal minimum wage and eliminate taxes on tips for hospitality workers—an idea previously proposed by Trump, making it a likely area of bipartisan agreement.

Donald Trump

In contrast, Donald Trump’s fiscal policies revolve around extending the Tax Cut and Jobs Act of 2017, which initially reduced corporate taxes from 35% to 21%. Trump’s approach is grounded in the belief that lower corporate taxes will spur investment and economic growth. However, while corporate tax rates may remain stable, individual tax cuts from this act are set to expire, which could lead to increased financial pressure on individual taxpayers.

Trump is also focused on modernising the US Defence Force, suggesting that we might see increased defense spending if he is re-elected. This could have implications for US government budgets and, by extension, economic growth rates.

Trade and Tariff Policies

Trade relations and tariff policies are crucial elements of the candidates’ platforms. Trump has introduced the most tariffs since the 1930s, particularly targeting China. Biden expanded some of these policies, suggesting a continuity in trade tensions.

While it’s unlikely that tariffs will see significant changes regardless of who wins, Harris may be more amenable to negotiating with “friendly” trading partners. This could foster a more stable international trade environment, which is vital for countries like Australia that rely on exports.

Regulatory Landscape

The candidates’ views on regulations offer little to excite investors. Both Trump and Biden have been criticized for failing to uphold their campaign promises, with PolitiFact reporting that only 23% and 28% of their respective promises were kept during their first campaigns.

Harris is notably pro-renewable energy, indicating a shift towards sustainable practices. In contrast, Trump has made it clear that he would leave the Paris Climate Accord and dismantle Biden’s emission regulations, suggesting a potential regression in climate policy.

The Importance of a Divided Congress

Interestingly, historical data shows that equity markets don’t exhibit a strong preference for which party controls Congress. In fact, the best market performance often occurs under a divided Congress, where checks and balances help prevent the passage of overly ambitious or polarising policies. This environment can mitigate uncertainty and volatility, both of which are critical for investor confidence.

The Australian Perspective

For Australian investors, understanding these dynamics is essential. While the immediate effects of US elections may not drastically alter the investment landscape, the broader economic policies set forth by the winning candidate could influence global market trends. Economic ties between Australia and the US mean that changes in fiscal policy, trade relations, and regulations can have a ripple effect on the Australian economy.

As we approach this pivotal election, it’s important for investors to stay informed and consider how these policies may impact their financial strategies.

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