- With the US election on November 5th, academic research shows us the likely economic impact of a Trump or Harris win
- Impact on the US dollar, CEO pay and inflation is likely to differ depending on who is the winner
- Research shows that Investment from foreign firms, as well as investment in new technologies likely to be impacted by the result
The run-up to the 2024 US election has arguably been one of the most dramatic and polarised, in recent times.
Despite being indicted on four specific charges, Donald Trump announced he was still planning to run for President for a third time, and became the Republican nominee, winning over 75% of the Republican primary vote.
At the same time, the Democrats overwhelmingly voted for Joe Biden in their primaries, announcing that he would seek to serve a second term as President of the United States.
Since then, discussions around Biden’s health and capability grew in volume and intensity, leading to a late change in the Democrat’s nominee. Joe Biden stepped back and Vice President Kamala Harris stepped up to become the next potential future Democrat President.
The Republican camp also hasn’t had the smoothest ride so far. A shocking assassination attempt on Donald Trump marred their campaign and lead to spokespeople across all political spectrums condemning political violence.
Throw in Charli XCX calling Kamala Harris a ‘brat’ (it’s a positive thing) Lil Jon announcing the Democratic nominee for Georgia, Trump being criticised for sharing AI images of Taylor Swift fans in Pro-Trump shirts and Hulk Hogan ripping his own shirt off at the Republican National Convention – and it’s fair to say that the US election has been full of surprises… and there’s still two months to go.
Beyond the soap-opera-esque drama, when it comes down to the real impact of Trump and Harris, what can we expect when either of them enters the Oval Office?
Policy promises are, of course, a good insight into what either nominee will focus on – but there is no guarantee either will stick to these pledges, or be able to get implement them.
However, academic research can give us a good insight into what is likely to happen, whether it be a Trump or Harris win. Here are five research findings that give us an insight into what we can expect come November 5th.
Will The US Dollar be worth less?
Presidential elections are always likely to have a huge impact on not only the global stock market, but also the US dollar too, with many hedging their bets on potential policies of the incoming President.
According to new research by Imperial College Business School, if Harris is to be sworn in as the 47th US President, we can expect to see a much better exchange rate for the US Dollar.
In fact, the researchers found that the US Dollar’s exchange rate return is more than 5% better each year when a Democrat is elected as the American President, as the friction on international trade friction is less when a Democrat is in charge.
Dr Pasquale Della Corte, Associate Professor of Finance at Imperial College Business School, and Hsuan Fu, an Associate Professor in the Department of Finance, Insurance and Real Estate at Université Laval, analysed 40 years’ worth of data and found a link between the performance of the US Dollar against foreign currencies and which party occupies the Oval Office.
According to the study, the US Dollar increased in value by over 4% a year during Democratic presidential cycles and depreciated by 1.25% a year during Republican cycles – a difference in returns of more than 5%.
According to the researchers, when America pursues trade policies which impose restrictions on imported goods, foreign markets retaliate by imposing their own restrictions on trade with the US. This leads to a decline in the value of the Dollar.
“Intuitively, we would assume policies favouring international trade – typically associated with Democrats, would see an increase in demand for US dollars, while trade policies that are more protectionist – typically associated with Republicans, would go hand in hand with a decline in Dollar demand in other countries.” says Della Corte.
Could there be an AI boom?
New technologies are rapidly impacting every aspect of our lives, whether that be our health and wellbeing, our working practices, our education or our downtime and entertainment consumption – there’s no getting away from it. The advancements of AI and machine learning are having positive impacts on our world, but there are also many challenges that come with such innovations.
What is apparent is new technologies are here to stay, so governments must grapple with how to use them, in order to get ahead of the curve. However, according to research by UCD College of Business, some governments may be keener than others in embracing these new innovations.
The research, conducted by Dr. Marius Claudy, Associate Professor of Marketing at UCD College of Business and his colleagues, found that conservatives show a lower acceptance of new technology, whilst, liberals are more likely to accept new technologies.
The researchers say that this is because many new technologies question the traditionally held values of conservatives. For instance, self-driving cars, tissue engineering and facial technology all challenge the current status quo, and contradict conservative values around privacy, patriotism, tradition and ethical codes.
Liberals, on the other hand, are more open to innovation as they have more fluid, individualised moral values and are more likely to be open to new ideas and approaches – especially if they are seen as a positive for society.
“Innovations perceived as impure or a threat to social order or traditions elicit greater opposition from those identifying as politically conservative,” says Dr. Marius Claudy. “For example, climate technologies often provoke apprehension about current social order from conservative stakeholders because of their potential to disrupt traditional industries and social cohesion. Likewise, lab-grown meats are often seen as unnatural and impure and are more likely to be rejected by conservatives.”
Will CEO pay drop?
CEOs in the US, like many countries, are heavily invested in the election campaigns and their businesses often have a lot riding on who comes out on top. Concerned with potential government policies that could impact their businesses, such as changes in taxation, trade agreements, labour laws and environmental regulations, it’s not uncommon for CEOs to invest interest, time and even money to support party political campaigns.
And it’s no wonder they have such a vested interest in politics, when the outcome can not only affect their business but their own personal earnings too, according research by Durham University Business School.
In fact, if a country elects a left-leaning, pro-equality President, CEOs are likely to see their own earnings drop by 6% on average, according to researchers Dimitris Petmezas and Dr Nan Xiong, from Durham University Business School and Bunyamin Onal, from Sabanci Business School.
Interestingly, the researchers also found that when a left-leaning political leader is voted out of power and a right-leaning leader is voted in – a shift from Biden to Trump, for example – then CEO pay increases by almost 3% on average.
The shift in CEO pay, according to the researchers, is actually in the form of bonuses, which are scrutinised much more heavily when a left-leaning government comes into power.
The researchers say that there are two reasons why this is the case; pro-equality sentiment and the potential for reputational backlash from high CEO pay, can prompt boards to reduce their top bosses’ earnings.
“Wealth inequality has been widening and becoming an increasingly greater concern around the world – particularly when it comes to income inequality. Though left and non-left-leaning governments have different approaches to tackling this, our research shows that left-leaning policies, in particular pro-equality sentiment, are more effective in reducing the inequality between employers and their CEOs, and tackling the widening inequalities in their respective countries,” says Dimitris Petmezas.
But a chance to boost bonuses is not the only reason why CEOs should be paying close attention to the election outcome and its business implications…
Could inflation increase?
A key element of Trump’s previous campaign was his protectionist sentiment and policies, fuelled by his “America First” patriotic approach. Trump believed this would protect American industries and workers from foreign competition, and ensure that domestic firms were the priority when it came to production.
This approach of adding tariffs on specific goods and renegotiating free trade agreements, however, had a negative effect on the US consumer – the opposite desired of the Trump administration. In fact, researchers from Princeton University, Columbia University and the Federal Reserve Bank of New York found that The Trump administration’s trade policies and tariffs reduced U.S. income at a rate of $1.4 billion per month.
Not only did the researchers find that US businesses and consumers saw substantial increases in the price of goods after the trade tariffs, but consumers also suffered from a lack of import variety, and disruptions in supply chains.
The study, by Mary Amiti (Federal Reserve Bank of New York), Stephen J. Redding (Princeton University) and David E. Weinstein (Columbia University), found that in the three years prior to these tariffs, there was a high variety of goods available in tariffed markets. Post-tariff, this variety has dwindled.
Trump’s trade war also caused turmoil in supply chains, as about $165 billion of trade ($136 billion of imports and $29 billion of exports) was lost or redirected through company and customer efforts to circumvent tariffs.
“Economists have long argued that there are real income losses from import protection. Using the evidence to date from the 2018 trade war, we find empirical support for these arguments,” the researchers wrote. “Losses mounted steadily over the year, as each wave of tariffs affected additional countries and products, and increased substantially after the imposition of the wave 6 tariffs on $200 billion dollars of Chinese exports.”
Can we expect less Foreign Direct Investment?
This protectionist sentiment, and patriotic “America First” approach from Trump not only impacted the extent to which goods are imported, but also likely impacted on how much foreign money was invested into the US under his tenure too.
Foreign Direct Investment (FDI) can bring several positives and negatives to a host country.
On the positive side, FDI can lead to economic growth by providing capital, creating jobs, and transferring technology and expertise. It can enhance productivity, improve infrastructure and increase access to global markets, ultimately boosting a country’s competitiveness. However, FDI can also lead to increased inequality and the favouring of foreign companies over the interests of the local community. Securing and ensuring net positives from FDI is a tricky challenge.
Striking this balance and securing the positives from FDI is near impossible if you have a populist leader, according to research by NEOMA Business School. In fact, the researchers found that when populist leaders are voted into office they often create unpredictable business environments, which drives down investment by foreign companies.
The researchers, Alfonso Carballo Perez and Margherita Corina, Assistant Professors at NEOMA, actually found that FDI can drop by over 10 percent following the election of a populist government. This is largely because populist leaders habitually attempt to disrupt the political and economic institutions in their country that guarantee the security of foreign investment, the researchers explain.
The findings, which come from analysis of investment data from a sample group of US multinational companies across 37 democratic countries between 1999 and 2020, do show, however, that this issue can be mitigated. By increasing their own internationalisation, corporations are able to reduce the impact of populist governments on foreign investment decisions by around 7.8 %.
“While populist rulers may take aim at multinational corporations as agents of globalisation, firms can absorb risk more effectively by diversifying their economic investments in other countries,” says Carballo Perez.
We do not know exactly what the impact of the November 5th result will have, not only on the United States, but also the ripple effect on the rest of the world. But if we want to predict what could happen post-election, it’s probably better to look at the history books, and the analysis of what’s come before rather than each party’s list of promises.
By Peter Remon
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