Inflation, jobs, isolationism dominate US election

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US November election introduces new layers of uncertainty to both the national and global economic outlooks.


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It’s increasingly likely that November’s US presidential election will be fought between incumbent Democrat Joe Biden and former president Donald Trump. Trump is currently a distant frontrunner in the campaign to be the Republican Party candidate for the most powerful position on Earth.

US elections matter. They matter to Americans, whose confidence/sentiment has soured in the face of high inflation, punishing interest rates and a cost-of-living crisis, but have benefitted from a strikingly resilient economy. They matter to the world, because of America’s status as a global political and economic leader. Decisions taken by the next president of the United States affect us all.

The economic backdrop to a crucial election

The election campaign will take place against a backdrop of economic uncertainty and geo-political tension. In domestic terms, the US economy is either in remarkably good shape or about to implode, depending on which presidential candidate you listen to. The reality is probably somewhere in between.

It’s certainly true that the US has weathered the inflationary environment of the last two or three years better than many global counterparts, with growth and employment remaining robust throughout. Consumer spending has been particularly resilient, fuelling an estimated 2.5% expansion in 2023 – far exceeding the recession that we and many other economists predicted at the start of the year.

But this relatively healthy outlook may not last, for several reasons:

  • US households have been spending more of their disposable income than previously thought, and consumers have also been taking on more debt. With that in mind, consumer resilience may erode this year.
  • Fixed investment has sharply declined, a sign that the economy is beginning to feel the impact of tighter monetary policy. 
  • Inflation remains sticky, which means the Federal Reserve is likely to delay any interest rate cut until at least the middle of the year.
  • Both Fitch and Moody’s downgraded the country’s credit rating in the second half of last year, which means the cost of borrowing is likely to rise in 2024.

The US economy may be the fastest growing advanced economy in the world right now, but it’s not out of the woods yet. We expect the cumulative impact of past monetary policy tightening, less accommodative lending conditions, restrictive fiscal policy and heightened policy uncertainty to drag on growth in the coming months. Nevertheless, we see the path to a soft landing increasingly likely for the US, with inflation falling towards target levels and unemployment remaining relatively low

Dana Bodnar, US economist | Atradius
Dana Bodnar
US economist at Atradius

In other words, the election campaign is likely to be fought against a contrasting backdrop of economic resilience and slowing momentum. Perception is everything when it comes to household and business confidence, so candidates will focus heavily on opposite sides of that coin.

An election with global impact

Economic prospects also ebb and flow on the tide of global events. As the world’s preeminent military, political and economic power, the US can influence those events to an unparalleled degree: the extent to which it is willing to do so will have a huge impact both at home and on the global economy.

With that in mind, the presidential election will be fought in part on the role America should play beyond its borders. In an ever-evolving landscape, geo-political tensions are undermining international trade, polarising opinion and bringing protectionist policies to the fore.

  • Ukraine: the US has backed the Ukrainian defence against Russia’s invasion with billions of dollars of military, economic, and humanitarian aid, but many Republicans in particular are now opposed to further payments.
  • The Middle East: the US finds itself entangled in the conflict in Gaza due to its close ties with Israel, but this is becoming more controversial as civilian casualties mount. Recent US-led airstrikes against Houthi rebels in Yemen may risk drawing the country into a wider regional conflict.
  • China: relations between the world’s largest economies remain tense, with mutual distrust expressed through trade tariffs and export controls on high tech components.
  • South and Central America: many US voters are concerned by record levels of immigration across the Mexican border. 

Geo-political tensions exact an economic toll. It has been calculated that the effective closure of the Red Sea due to Houthi attacks on ships could reduce international shipping capacity by around 20%. The war in Ukraine, meanwhile, has fuelled inflation and remains an obstacle to global economic growth. An all-out trade war between China and the West would have a huge impact on global supply chains and manufacturing capacity.

Donald Trump and the ‘America First’ agenda

How might the presidential election affect all this? The Biden administration has been part of a Western sanctions campaign that has cut Russia off from normal relationships with advanced economies. It has also shown an increasing reluctance to share technological expertise with China, and tensions between the superpowers remain high.

“We have seen major shifts in the world trade system over the last few years driven by the pandemic and changing geopolitical landscape,” says Bodnar. “Governments and  businesses are investing in boosting the resilience of their supply chains, which is contributing to the decoupling of trade, especially in advanced technology, between China and the West.”

That’s the situation now. The likelihood is that under a Trump administration, this  reorientation of global trade will gather pace into an increasingly multipolar world. The former president is campaigning on a promise of “America First”, a fundamentally protectionist and isolationist approach to the economy and foreign policy.

Trump has floated the idea of a 10% tariff on all imported goods to boost domestic production. This would likely trigger retaliatory charges on US exports, significantly impacting supply chains and global trade. The first Trump presidency was characterised by an aggressive trade war with China and a series of tariffs on metal imports from allies and opponents alike. There’s been nothing in his rhetoric in the campaign so far to suggest a similar pattern won’t be repeated during a second Trump term.

If re-elected, Biden's economic approach would focus on strengthening the middle class, healthcare expansion, and green energy infrastructure. Funded by tax increases on higher-income individuals and corporations, his plan aims to continue job growth, deficit reduction, and address civil rights issues. Biden's commitment to tackling climate change may face economic obstacles. Globally, his administration emphasizes international cooperation, yet resistance could arise from those advocating more protectionist policies.

Uncertainty in a volatile world

Markets don’t like uncertainty, but they may have to endure plenty of it between now and November’s election. The likely candidates have heavily contrasting views on trade, taxes and America’s place on the world stage, making long-term planning highly problematic for international businesses.

For the US economy, 2024 was always likely to be a year of low growth and faltering confidence. Geo-political challenges add to the sense of uncertainty in a volatile world. Consumer spending, business investment and the response of financial markets to inflation and interest rate shifts create a fluctuating backdrop to a campaign the world is watching with a mix of curiosity and concern. 


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