If this U.S. election felt different to you, it’s not just you. Experts say it was different.
The outcome of a U.S. election has always been important to other countries, but never of this same magnitude, said Dan Clifton, partner and head of policy research for Strategas, in an interview by BOK Financial® Chief Investment Officer Brian Henderson on Nov. 7.
“This was the first global election. Small changes in Trump's probability of winning were impacting the Indian rupee over the Chinese yuan because Trump winning means the supply chains likely are going to migrate out to India,” he explained. “The Taiwan stock market has been more correlated to the U.S. election than the U.S. stock market is because the market viewed Trump as a greater protector over Taiwan.”
The interview was featured in a webinar focused on how the presidential and congressional elections affect financial markets, tax policy, the economy and other fiscal matters. BOK Financial hosted the event.
“My thesis coming into this year was that this is the most investable election of our lifetime,” Clifton said. “The most important reason why is that the differences between Trump and Biden—and then Trump and Harris—are as wide as we've ever seen on public policy issues, so we knew we were going to get something very, very different with each, which is going to create very different winners and losers.”
Breaking down the issues
Although much won’t be known until President-Elect Donald Trump takes office in January, it’s safe to say that four key issues will be affected by the outcome of the election—immigration, trade, financial deregulation and energy. Here’s what we know about each of these so far, according to Clifton.
Immigration: “Donald Trump's going to read this election as a mandate on immigration, which means that he's probably going to shut down the border very quickly by executive order,” Clifton said.
“That means that two million people are not going to come through that border, which means there are going to be fewer people in our labor force,” he continued. Although Trump's policies on immigration are likely going to be more nuanced than what was said on the campaign trail, “he’s not going to be pro-immigration until he sees that every American has a job.”
In the aftermath of the pandemic, American businesses struggled with a labor shortage—to the degree that there two open positions for every person seeking work in 2022. Looking forward, as more Baby Boomers retire, it’s estimated that employers may have to replace between 10.8 million and 14.8 million employees who are “Peak Boomers,” which could lead to worker shortages.
Already, financial markets have been anticipating the effects that a closed border might have on U.S. businesses, Clifton noted. “There's going to be a different earnings benefit to companies that are levered to the border as you start to think about greater border enforcement,” he said. For instance, shares of some private prison operators hit their highest levels since 2019 on the assumption that there might be greater demand for detention centers.
“The focus will need to be on legal immigration policy,” Henderson added. “During Trump’s previous term, net immigration was around 1 million people, and workers are going to be needed to fill vacancies in order to keep up with the desired growth trajectory of the country.”
Trade: During his campaign, Trump said that he would impose a blanket tariff of 10% to 20% on all imports, with additional tariffs of 60% to 100% on goods imported from China, and a 25% to 100% tariff on goods from Mexico, if the Mexican government doesn’t take steps on its end to close the border.
For Trump, imposing tariffs on imports from China and Mexico is more a national security issue than purely an economic issue, Clifton said. “Donald Trump believes that China is a national security risk to America. He believes that China is financing all this geopolitical chaos happening around the world,” he explained. One effect will be that U.S. companies conducting business in China will find it cost-prohibitive to do business there, which will continue to move supply chains out of the country.
This supply chain migration out of China has already been happening since the pandemic; Mexico has been one beneficiary, to the extent that U.S. has started importing more from Mexico than China. However—with Trump’s proposed tariffs on Mexico, too—that could change.
Some economists believe that Trump’s proposed tariffs and deportations could cause inflation to rise. The Federal Reserve also might view these policies as inflationary and keep interest rates higher for longer, cutting rates less than what was previously anticipated—a scenario that financial markets are already anticipating, Clifton said.
“Trump wants the economy to continue to grow,” Henderson said. “But in order for that to happen, he will have a delicate balance to maintain in order to implement a tariff strategy without prompting an inflation upswing in the process.”
Financial deregulation: As part of the ongoing “Trump trade”—that is, investors buying the stocks that are likely to benefit from Trump’s policies and selling that ones that aren’t—bank stocks have been up based on the assumption that there will be less regulation of the financial services industry.
Clifton also expects less regulation on cryptocurrency in the new administration. “You’ve seen a pretty broad rally in the crypto assets under the idea that they're going to get more deregulation under Trump and more liberalization of their product and commercialization of their product.”
Energy: “I think there's going to be a big push to unwind a lot of regulations that have been imposed on the industry over the last few years,” Clifton said. For instance, Trump is expected to remove the emissions test that the Biden Administration put on liquified natural gas (LNG) terminals, and support more domestic oil production, including on federal lands, and more use of fossil fuels, such as coal and other activities.
Clifton also anticipates that there will be a push for more nuclear energy, driven by the need to fulfill the immense power needs of data centers. “I think you're going to see a very pro-energy administration to be able to get that power use through,” he said.
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