US equities ahead of the election: tax, tariffs and (red) tape…

With a few weeks to go, the US election remains too close to call. While Kamala Harris has a slight lead in the polls, Donald Trump is generally better rated on the economy. Escalating tensions in the Middle East and political fall out from storms Helene and Milton also increase the potential for an ‘October surprise’ which could derail either candidate’s campaign.

While we do not think the outcome of the election will fundamentally change the course of the US economy, there are clear differences between the two candidates’ approaches. We broadly put these into the categories of taxes, tariffs and regulation.

A Trump win…

Lower taxes

One of Donald Trump’s biggest pledges is to cut taxes. Trump plans to extend the law passed in his first term that lowered business and individual tax rates and which is due to expire in 2025. Trump also wants to lower the corporate tax rate further, from 21% to 15%¹.

Other potential policies include eliminating federal income taxes on worker tips, overtime pay and Social Security benefits.

Tariffs…making America great again?

In part to fund these tax reductions, Trump has proposed more trade tariffs. Tariffs of $50bn on China were introduced by Trump in 2018, imposed to promote domestic manufacturing and to combat China’s theft of intellectual property. The tariffs were upheld (and in some cases increased) by Biden’s administration. In this election campaign, Trump is suggesting 20% tariffs on all imports, rising to 60% on goods from China².

The tariffs could be more wide ranging: during the campaign Trump has threatened giant new tariffs on cars from Mexico and on farm machinery made by John Deere & Co. if the company moves production abroad.

Cutting red tape

In a further attempt to boost growth, Trump would continue his agenda, begun in the first term, of deregulation. As in his previous presidency, an area of focus is likely to be environmental and energy regulations. This is likely to include reversing some Biden area restrictions on greenhouse gas emissions and removing investment in electric vehicles.

Elsewhere, to facilitate investment and promote the pro-growth agenda, a Trump administration would likely make efforts to reduce some areas of financial service regulation.

A Harris win…

Raising taxes

In contrast, Kamala Harris is proposing raising taxes on corporates and the wealthy as a way of boosting revenues. She proposes increasing the corporate tax rate to 28% and lifting the tax on capital gains to 28% for people earning $1 million or more³.

This tax increase on corporates would in part be used for tax relief for lower- and middle-income groups. Some of Harris’s proposals include the expansion of child tax credits and the introduction of tax credits for first time buyers.

Some analysts estimate that the corporate tax increase would cause a 5% reduction in earnings for the S&P500⁴.

Tariffs

As noted above, the Biden administration kept many of the tariffs previously imposed by Trump. Harris is likely to maintain the status quo with no surprises.

Regulation

Having been instrumental in introducing the 2022 Inflation Reduction Act which (among other things) funded energy and climate projects aimed at reducing carbon emissions by 40% by 2030⁵, Harris is unlikely to change her stance on energy and environmental regulation.

In addition, Harris would likely continue Biden’s increased scrutiny and regulation of many areas of financial services. This has included more transparency on banking fees, increase in regulatory capital banks must hold and actions taken against cryptocurrency firms.

How are we positioned for either outcome?

First we would note that, in order to introduce any major policy reform, either candidate would need a ‘sweep’ of Congress as well as a presidential win. Without this, any policy changes would be substantially watered down. The potential wildcard is Trump using executive orders to bypass Congress, as he did in his first presidency. This could enable him to push through some areas of policy, such as the imposition of tariffs.

Where we have exposure to macro themes, our view is that they are structural and not in the firing line of either a Trump or Harris presidency. Infrastructure investment across both public and private sectors is huge. The state of roads, bridges, and water infrastructure in the US is poor after years of underinvestment. Although Trump has threatened to scale back some areas of the Inflation Reduction Act that has funded the investment, the reality is that support for infrastructure improvement is bipartisan and benefits many Republican states.

Data centre infrastructure is another area that is experiencing significant investment as a result of the rise in cloud computing and investment in AI. Data centres, as one might expect, require a number of components that are highly complex and require specialist labour to build and service. We are exposed on the hardware side, the labour side, as well as the power side through holdings in independent power producers.

On a final note, we invest in the US because it is the home of strong domestic companies investing and pursuing growth. This is largely untouched by politics.