US election: High economic and financial risks ahead

Campaign promises on taxes and trade, particularly those by Trump, are likely to have a destabilising impact if carried out.

- Vikram Khanna

As the US election draws nearer, analysts have been focusing on what they call the "Trump trade" and the "Harris trade". They are referring to mainly how financial assets will perform depending on which candidate wins, and have come up with various recommendations.

However, what happens to the macro economy after the election - particularly the US fiscal deficit, debt, inflation, trade and economic growth - could send a lot of market predictions haywire.

Assuming the macro situation remains under control, one of the favoured "Trump trades" is conventional energy. Fossil fuel stocks are expected to benefit from candidate Donald Trump's liberal policies towards oil and gas companies were he to become president. On the other hand, renewable energy companies - of which Trump is no fan - could suffer, especially if the Biden administration's Inflation Reduction Act (IRA), which has lavished subsidies on such companies, is cut back.

The expected increases in tariffs under a Trump administration would benefit domestic US producers. These would mostly be smaller firms that don't rely heavily on global supply chains. By contrast, large US multinationals which do, and have significant offshore production facilities, could be hit. But they would be outsized beneficiaries from reductions in corporate taxes, which Trump has pledged to slash from 21 per cent to 15 per cent.