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SINGAPORE: The United States presidential election on Nov 5 may have far-reaching consequences on economies worldwideubet63, including in Southeast Asia.
The outcome of the election may have significant impact on the US economy and, by extension, the US Federal Reserve’s monetary policy, interest rates and the US dollar.
The opinion polls suggest that Democratic candidate Kamala Harris has a slight lead in popular votes against Republican candidate Donald Trump. However, because of the US electoral college system, the outcome will be determined by swing states, in which both candidates are polling neck and neck. The election is thus too close to call.
POTENTIAL INFLATIONARY BIAS OF TRUMP’S POLICIESMuch has been discussed about the potential inflationary bias of Trump’s desired policy mix. On the campaign trail, Trump has advocated for a series of escalating tariffs.
These range from a significant hike in trade tariffs against China to 60 per cent, to a punitive 200 per cent tariff on vehicles imported from Mexico. These will add to his proposed universal tariff of 10 per cent for all goods imported into the US.
Trump has also suggested that the trade tariffs can be used to pay for tax cuts. He wants companies manufacturing goods in the US to pay a lower preferred tax rate of 15 per cent, down from 21 per cent currently.
However, this could come at the expense of inflation, as his increased tariffs will lead to higher prices of imported goods.
Trump also wants to repatriate and deport illegal immigrants - an idea which could tighten the labour market and drive up wages, creating another source of inflationary pressure.
On the surface, his proposed policies may prolong the current stronger-than-expected growth cycle for the US economy.
However, these policies, even if carried out just in part, may trigger renewed inflation for the US economy. The Peterson Institute of International Economics has warned that Trump’s tariff proposals could cost a typical American household more than US$2,600 a year.
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Commentary: US vice presidential nominee JD Vance articulates Trump’s policies better than Trump himself 
Commentary: If Trump-Vance prevail in November, expect even more American isolationism This higher inflation may result in a shallower rate cut trajectory from the Fed than anticipated by the market.
Currently, we expect the federal funds rate, the interest rate at which commercial banks lend to each other, to fall from 5 per cent now to 3.5 per cent by the end of next year. But this forecast is uncertain should Trump return to office.
MORE TARGETED PROPOSALS FROM HARRISIn contrast, Democratic candidate Harris has so far painted her desired policies in broad strokes. In terms of trade policies, she is likely to continue the “small yard high fence” approach by the Biden administration, implementing more tariffs for specific industries with a less confrontational approach than that of Trump.
In terms of tax policies, she has proposed a hike in income tax for top income earners, higher tax for the top capital gains bracket, and higher taxes for corporations, with tax reductions reserved for strategic sectors and clean industries.
She wants to assist smaller businesses and poorer households tackle the higher costs of living. Broadly speaking, her proposed economic policies are more targeted and less extreme than Trump’s - and likely to have less of an inflationary impact on the US economy.
Unlike Trump’s suggestions for more presidential oversight on monetary policy decisions, Harris has supported the ongoing independence of the Fed. Harris has also not suggested any measures to unilaterally devalue the US dollarubet63, a proposal that Trump has floated on several occasions as well.
Democratic presidential nominee, US Vice President Kamala Harris, speaks during a presidential debate hosted by ABC as Republican presidential nominee, former US President Donald Trump, listens, in Philadelphia, Pennsylvania, US, Sep 10, 2024. REUTERS/Brian Snyder/File Photo
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