Presidential primaries are underway, and as you look at the surprising array of characters that are involved, it’s natural to wonder what all those speeches and soundbites mean for you. After all, even for those of us outside the US, American policy can affect our investments and daily lives.
Let’s start off with the 4 main candidates:
Hillary is obviously very much part of the establishment. She leads the race for the Democratic ticket with 48% of the vote, vs 42% for Bernie Sanders. She defends rolling back some of the Bush tax cuts for the wealthy, regulating financial activity and improving workers’ rights. She is in favour of free trade, but with caveats regarding specific deals. As the most centrist of the 4 leading candidates, a Hillary victory is currently the most likely outcome. As a continuation of the status quo, her victory should be fairly neutral for US investments – representing neither a short term jump, nor long-term risks from unorthodox policy.
The Senator for Vermont defends a social-democratic model that is similar to that of Europe and specifically Scandinavia. Interestingly, he joined the Democratic party only in 2015, having been until then the longest-serving independent congressman in the history of the US. He is strongly against existing international trade agreements and defends increased worker rights and minimum wages and a strong climate change policy. He is in favour of breaking up large financial institutions and financing social policy with a financial transactions tax. While this broadly left-wing agenda would naturally be seen as more bearish for stocks and banks, Sanders’ proposals have usually been within the bounds of what most would consider to be ‘normal’ in mainstream politics, as opposed to some of the unorthodox policies defended by the leading Republican candidates.
Since mid-2015, Trump has led the race for the Republican nomination, with 34% of the polls. The billionaire real-estate developer’s populist campaign, peppered with often contradictory views, makes it hard to pin down exactly what he stands for. In fact, he has been affiliated to, and contributed to politicians of, both the Democratic and the Republican parties.
On the economy, Trump has defended free trade in general while also arguing for a 45% tariff on Chinese imports. He proposes lowering the corporate tax rate to 15% while closing loopholes and limiting interest expense deductions. He is in favour of increased domestic oil production and limiting regulation, including environmental regulation.
Assuming Trump wins the Republican nomination and somehow succeeds in winning the election (which is considered unlikely given his rejection rate among Democrats and even among Republicans – overall 60% of voters disapprove of him), it is likely his policies would be much less extreme than he makes them out to be at this stage. Given his background, one might expect them to be beneficial for business and therefore investments. But his eccentric positions on a number of social and international issues could, on the other hand, spark a crisis of confidence, driving down the Dollar and the stock market, and lead to a noisy but ineffective presidency.
Senator Ted Cruz of Texas is number 2 in the Republican race, with 20% support, only slightly ahead of Marco Rubio, at 16%. Publicly he has defended scrapping the IRS and instituting a flat personal income tax of 10%, as well as suggesting the Fed adopt the Gold standard. As a senator he has proposed bills that favour oil producers and limit the powers of the Environmental Protection Agency. Presumably his tax cuts would boost incomes and spending, lifting stocks in the short term, though defending the gold standard does not usually strengthen a candidate’s economic credentials in the eyes of experts.
Historically US presidential candidates have had to voice strongly partisan, memorable and eccentric views in order to win their party’s nomination. Successful candidates have then managed to rephrase their views and move to the center to broaden their appeal, while dodging accusations of flip-flopping. This happens usually by March or April.
In 2016, the intense nomination races on both sides mean that it is currently particularly hard to read the positioning and implications of a possible election of any of the candidates. So to get a good read on what the election means for you, don’t worry too much about what has been said so far. Focus instead on how the leading candidates position themselves in a few weeks’ time.