With days to go before the United States holds its presidential election, political and economic polarization casts a shadow over the nation. The clash between the Republican and Democratic camps presents divergent economic models, from tax and fiscal policy to trade, energy, and regulation. These proposals will not only shape the country’s future but also influence markets, which are already pricing in a close result and its potential consequences.
The economic foundations of each party, though clear at their core, show nuance. The Republican candidate, Donald Trump, advocates an economy built on deregulation, tax cuts, and a stronger domestic industry through tariffs, particularly on China and other emerging economies. Kamala Harris, the Democratic candidate, remains aligned with the Biden administration, prioritizing a welfare-oriented economy that seeks sustainable growth supported by the energy transition and a progressive tax structure that raises taxes on large corporations and high incomes.
Nevertheless, win or lose, the trend of rising debt in the US economy appears set to continue. A report titled What can we expect from the United States elections in the economic field? prepared by the Real Instituto Elcano and authored by Judith Arnal and Federico Steinberg notes that both candidates present proposals that diverge in approach yet seem likely to persist with growing deficits and rising protectionism. While Trump leans toward a more aggressive isolationism, Harris leans toward a more moderate policy, but both options carry considerable risks for international economic stability, especially for allies in the European Union.
Fiscal Policy
Republicans: Trump has signaled that his administration would pursue a continuation of the tax cuts enacted in 2017, expanding them further if he wins. The aim is to lower taxes, keep the corporate tax rate at 15%, exempt tips, and expand payroll tax relief. These measures are intended to spur growth and investment, but could push the budget deficit higher, potentially by six to seven trillion dollars over the next decade. According to an analysis by DWS, these tax plans would also depend on Trump’s ability to win congressional support, given the likelihood of legislative resistance in a divided legislature.
Democrats: Harris advocates a different fiscal path, with corporate tax at 28% and a global minimum of 21% for multinationals. The additional revenue would fund social programs and the energy transition, with the aim of redistributing wealth and funding services such as education and health. A report from Columbia Threadneedle Investments indicates this strategy intends to reduce inequality and promote a more inclusive economy, though it would raise the deficit by about two to three trillion dollars in the next decade.
Trade and Tariffs
Republicans: Trump’s trade policy centers on strong protections, with tariffs of 60% on Chinese products and an additional 10% on imports from other countries. A Nextep Finance analysis notes these tariffs aim to pay for tax cuts and promote reindustrialization by encouraging firms to operate within the United States. Yet experts warn this stance could provoke retaliation from trading partners and raise prices for domestic consumers. This view is echoed by a Real Instituto Elcano analysis, which notes Trump appears to favor a much more aggressive, broad-based tariff policy.
Democrats: Harris would maintain strategic tariffs targeted at technology products from China and other economies considered adversaries, such as Russia, Iran, and North Korea. She would also apply strong, selective subsidies to spur green investments and push for friendshoring by deepening ties with allied economies. The DWS report suggests this approach continues pressure on China while seeking balance with allies and limiting retaliation.
Energy and Climate Change
Republicans: The Trump administration would prioritize expanding the hydrocarbon industry, relaxing regulations on oil and gas exploration and production. A Columbia Threadneedle Investments analysis says this could lower costs for the industrial sector but raises environmental risks and could increase national emissions.
Democrats: Harris would continue the Inflation Reduction Act, channeling investment into renewable energy and green infrastructure. The candidate proposes tax incentives for clean technologies and a long-term plan to reduce dependence on fossil fuels. The Columbia Threadneedle report says this stance responds to the global demand for sustainable policies and seeks to position the United States as a leader in the fight against climate change.
Impact on Markets and Regulation
The effects of these policies on the markets are already a topic of analysis. According to DWS and Columbia Threadneedle, a Trump victory could generate volatility in sectors such as manufacturing and technology due to tariff uncertainty. Markets might react with relief to a Harris win, perceived as more stable and less disruptive. However, sectors such as energy and finance could benefit from a Republican victory given the expected tax cuts and deregulation. Moody’s notes that under a Trump administration, banks could see looser capital and liquidity requirements for mid-sized and smaller institutions, potentially weighing on ratings. Trump has also pledged to position the United States as a crypto powerhouse.
Democrats: Harris would favor a more interventionist regulatory approach, with a focus on data protection and inclusion, according to the Real Instituto Elcano. This would entail greater oversight of large technology firms.
Foreign Policy and Defense
Republicans: Trump’s foreign policy follows an American First approach, aiming to reduce involvement in NATO and Ukraine aid. This would free resources for the domestic economy but could strain international relations. The DWS analysis notes that the protectionist stance also shapes defense commitments to allies such as Israel, potentially strengthening some alliances while complicating others in a complex global framework.
Democrats: Harris’s foreign policy emphasizes multilateralism and strengthening traditional alliances. The DWS report argues it seeks to sustain American leadership in a multipolar world while pursuing relative decoupling in key technology and security areas from China. An Elcano analysis notes Harris could consider joining the Comprehensive and Progressive Trans-Pacific Partnership CPTPP, with eleven member economies including Australia, Japan, Chile, Mexico, Peru, New Zealand, and Singapore, a move that would influence trade rules, subsidies, and public procurement. The CPTPP is viewed as a framework that expands trade while embedding governance standards for corporate conduct and subsidies.