Donald Trump or Kamala Harris will have to confront the “America First” line. And to the programmed increase in the country’s budget and trade deficits.
The crazy American campaign picks up speed again. After the cataclysmic June 27 debate with Trump, Biden threw in the towel less than a month later, paving the way for his vice-president, who managed the feat of unifying the Democratic Party behind her in less than 48 hours.
After the Democratic convention in Chicago on August 22, with the apotheosis of Kamala Harris and her running mate Tim Walz, a new chapter in the campaign has opened with the first direct debate between the official candidates. This is the decisive moment in the 8 weeks leading up to November 5, while absentee voting has already been open in North Carolina since September 6.
In just over a month, the narrative of the presidential race has changed. The alternative pushed by Trump “in the face of the world’s dangers, you must choose a strong man to protect you and Biden is incapable of doing so”, was substituted by the question posed by Kamala Harris “do you want to go backwards with Trump or forwards with us?”.
Even in the United States, the land of eternal optimism, this prospect is far from unanimous, and the economic difficulties of the working classes, faced with the spectacular price rises of the post-CoVid years, are weighing on voting intentions, particularly in the Midwestern states, in search of their former greatness.
However, the polls, which showed a clear lead for the forty-fifth President over Biden, have tightened and are now painting a very open political landscape. Each “pivotal state” is fiercely contested, and the leadership changes almost weekly as the “tickets” intervene.
Despite their very different styles, backgrounds and rhetoric, the two candidates’ economic approaches are very similar, revolving around the notion of protection, limiting market-based regulatory mechanisms and increasing the budget deficit.
Protection is a clear focus of both campaigns. This is obvious for Trump, with his promise to raise tariffs to 60% on all products from China and to use this weapon against all those whose economic or monetary practices displease him.
This is also a point defended by Kamala Harris’ teams, in the direct wake of the policies pursued over the past three years by the Biden administration. Less general and central than in the case of her Republican opponent, this theme, under the mantra “a small courtyard surrounded by high walls”, is recurrent in the candidate’s speeches. This applies, of course, to areas defined as strategic in the context of rivalry with China, but also, more recently, in migration policy, long a blind spot in Democratic policies.
The second similar point is our distrust of the mechanisms that regulate the economy through free market channels alone. Here, it’s the Democrats who are leading the way. Increased price controls on foodstuffs, greater regulatory pressure on tech giants, maintaining a strict framework for financial activities and generalizing minimum wage increases – examples abound.
Surprisingly, Donald Trump’s teams are not far from sharing this distrust. Not in the financial or energy fields, where unbridled deregulation is the cornerstone of its approach.
It’s more nuanced in the case of technology, where the desire to “free speech” on platforms is combined with a determination to repatriate the productive forces of this strategic sector to the country at all costs, even under duress, and to tightly control investments.
On the other hand, it’s very clear in healthcare and insurance, considered key areas for the purchasing power of the working classes, and where Trump wants to throw all his weight behind bringing down the price of treatments and benefits.
Finally, the last point of convergence, the most obvious and probably the most followed by investors worldwide, is the use of the fiscal weapon to support growth and employment in the country.
In the case of the Democrats, the increase in the deficit is inevitable due to the programmed increase in spending. Among their campaign promises were $40 billion in aid for housing construction, $25,000 in homebuyer assistance for first-time buyers, and an increase in the tax credit for the birth of a first child from $2,000 to $6,000.
These expenses could not be offset by the promised increase in the corporate income tax rate from 21% to 28%, and higher taxes on households with annual incomes over $400,000. The current budget deficit, which stands at 7% of GDP, is bound to widen. According to a calculation published at the end of July by the independent think-tank Tax Foundation, the deficit should increase by 0.25% of GDP on an annual basis.
On the Republican side, it’s through declining revenues that the widening is expected to take place. Donald Trump has promised to make the Tax Cuts and Jobs Act tax cuts, due to expire in 2025, permanent. He also plans to lower the corporate tax rate from 21% to 20%. Tax Foundation estimates that, despite the revenue from additional customs duties, the deficit would increase by 0.5% of GDP on an annual basis.
At a time when the US federal debt is climbing at the dizzying rate of a trillion dollars every quarter, this will put pressure on the world’s financial markets to finance the world’s leading power, and on the dollar as the world’s leading currency.
America’s commercial, political and financial partners must be resolutely prepared: neither Donald Trump nor Kamala Harris will spontaneously play the “common good” card in these areas. The withdrawal of nations and their peoples into their own issues is a general trend on every continent, and the United States is no exception. The markets have already been living in this environment, to a greater or lesser degree depending on the year, since Trump’s first term and even since the end of the Obama years.
