How a Trump win will affect markets

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As America’s presidential polls bob and weave, investors place bets ahead of time based on their own predictions.

The U.S. dollar has increased in value recently because of strong jobs and economic data. Meanwhile, some investors are endorsing the so-called Trump trade — shorting bonds and buying selective equities in anticipation of his victory.

This is based on his pledge to cut taxes, which will increase deficits and hurt bond values. Others are betting that he will also impose tariffs that will be inflationary but will benefit some American industries, or that he will help technology and oil giants by providing them with tax breaks and less regulation.

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Republican presidential candidate Donald Trump has been pushing across-the-board tariffs of upwards of 20 per cent, which his Democratic opponent, Kamala Harris, has dubbed “a Trump sales tax,” due to the upwards pressure it will put on prices.

“We would see tariffs as adding to inflationary pressures,” Mark Dowding, chief investment officer at RBC Global Asset Management, told The New York Times. “This may make it more challenging for the Federal Reserve to lower interest rates next year, if Trump prevails.”

Meanwhile, polls show the two presidential contestants are in a dead heat. This may mean there won’t be a clear-cut winner on election night. If Harris squeaks through, Trump will cry foul and relaunch the nasty “stop the steal” business. Markets don’t like uncertainty.

In America, elections are also followed by a long gap before the new president takes office, known as the “lame-duck period,” which virtually shuts down Congress. The post-election period may run into other difficulties.

The 50 states are in charge of voting. Each must certify the result (which determines the allocation of their state’s electoral college votes), before Congress counts the electoral college votes and certifies the overall result.

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However, if there are questions of cheating or the disenfranchisement of voters, the U.S. Supreme Court could get involved. This happened in 2000, when vote-counting methods were questioned and the court ruled in George W. Bush’s favour.

In 2020, Trump lost the election, but was in charge for the weeks leading up to the inauguration. During this time, his followers waged and lost legal battles, then some stormed the U.S. Capitol, in an attempt to stop the certification of his loss.

If results are contested this year, violence is unlikely because the “lame duck” incumbent, President Joe Biden, will be in charge until the inauguration on Jan. 20, 2025. If there is trouble before or after the election, he will likely impose law and order by summoning the National Guard or military to crack down. He could potentially impose martial law, if necessary.

But if Trump resoundingly wins, then he will become president, and the world will have to adjust. Trade, markets, banking and diplomacy will be upended. The relationship between the United States, Europe, Canada and Mexico will be changed because Trump will use the threat of tariffs to obtain concessions on trade. Such uncertainty will roil markets for some time.

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