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The stories that matter on money and politics in the race for the White House
The writer is professor of business at Columbia Business School
There is much riding on the upcoming US presidential elections for investors. As Joe Biden prepares to leave the White House, he leaves an admirable economic legacy that has underpinned a strong investing environment.
Under Biden, 15mn jobs were added to the US economy, the current 4 per cent unemployment rate is the lowest rate in decades, and GDP in absolute terms is at the highest level ever. So, too, are corporate profits and share prices, which have risen around 45 per cent since Biden’s inauguration. The dollar has been strong against all other major currencies. Inflation, now around 3 per cent, is well below its post-pandemic peak. The average household is enjoying gains in inflation-adjusted disposable income, which bodes well for future growth.
That environment may now be at risk in the coming presidential election if Donald Trump returns to power. Potential changes fall into three main categories: Biden’s legislative achievements, policies related to trade and other foreign engagement, and those linked to regulation and the staffing of government functions.
The conduct of monetary policy may also be altered. Under Biden, the Federal Reserve tightened policy to lower inflation without political pressure. Would Trump try to interfere in policy if re-elected, as he has sought to in the past? And the next president can choose a successor to chair Jay Powell when his term expires in May 2026.
On the legislative front, Biden and House Speaker Nancy Pelosi successfully pushed bipartisan legislation aimed at supporting long-term investment and competitiveness in the US. Let’s consider three measures now at risk. First is the act that finally tackled public infrastructure shortfalls in the US. Such long-tailed investment in roads, bridges and water systems had been repeatedly deferred and there was little advance planning to meet the increasing challenges from climate change.
Second, the Biden team passed the Chips Act, which provides funding for the technology sector and is lessening US dependence on foreign supply in critical categories.
The third major legislative success was the Inflation Reduction Act, which has been a major boost to the development of greener energy. This is critical not only for the environment but also because the US electrical grid will not meet future demand unless renewable energy sources are used, and the underlying infrastructure is upgraded.
The interconnection between trade and foreign policies should also be high on the radar of investors. The Biden administration has strengthened US ties with other nations. New tariffs have been introduced but in a less confrontational way than under Trump, targeting concerns such as dumping and national security.
Trump intends to make aggressive use of tariffs that goes even beyond that of his first presidential term. He has called for them on almost all imports coming into the US, including from countries that are allies and friendly trade partners. And Trump favours a weaker dollar. Most economists agree that the net effect would be slower growth and higher inflation in the US and other countries. There would be diminished demand for the Treasury securities needed to finance the national debt, causing upward pressure on interest rates.
Another risk to the economy from a second Trump term would be immigration. The US economy has long prospered from its attraction to immigrants at both ends of the education and economic spectrum. Sectors such as agriculture and hospitality are currently sounding the alarm on worker shortages. Two-thirds of working PhDs in engineering and medicine in the US are immigrants. Failure to reform the system, and to encourage legal immigration, will slow economic growth and be inflationary. Trump actively torpedoed comprehensive bipartisan immigration legislation earlier this year.
The former president also favours dramatic shifts in government regulation and agency staffing in a second term that could eliminate thousands of non-partisan civil service positions. These would include the scientists and other technical experts in federal agencies who work on policy details. The recent Supreme Court decision to reverse the so-called Chevron deference — which allowed technical experts in agencies to set specific rules — would push further in the same direction, handing more power to political appointees. History has shown that thoughtful regulation, not deregulation, is most closely associated with sustainable economic growth. This is yet another reminder that elections have consequences.
