The night before the U.S. election: "Trump 2.0" vs "Harris Surprise"

Abstract

The 2024 U.S. presidential election will officially begin on November 5, with the winner taking office in the White House in January 2025, starting a four-year presidential term.

The policy proposals of Trump and Harris have both similarities and differences, leading to significant variations in their impacts on the Sino-U.S. economy and asset prices. Current polling results show Trump temporarily leading, and the market is widely betting on the "Trump trade," but attention should also be paid to the potential for an "unexpected Harris" if the election situation reverses. For China, regardless of who wins, the outcome will not change the U.S.'s ongoing suppression of China in the economic and technological fields, and timely and proper responses should be made.

I. Comparison of Trump and Harris's Policy Proposals

(A) Similarities

1) Tax Cuts. The core of both parties' economic policies is to stimulate the economy through tax cuts. According to CRFB estimates, Trump's and Harris's tax cut policies will result in a maximum reduction of $11.9 trillion and $5 trillion, respectively, over the next decade (fiscal years 2026-2035).

2) Promoting Manufacturing Reshoring. Trump plans to promote the reshoring of manufacturing to the U.S. by bringing key supply chains back and prohibiting companies that outsource jobs from doing business with the federal government; Harris will formulate the "America Forward" strategy, investing in emerging technologies and modernizing traditional industries.

3) Expanding Housing Supply. Trump plans to open up some federal land for new housing construction, while Harris will establish new tax credits to support new housing construction and repairs.

4) Controlling Illegal Immigration. Trump has always taken a "zero tolerance" approach to illegal immigration, and Harris has recently emphasized the necessity of controlling illegal immigration.

5) Implementing Restrictions on China in Technology and Economic Fields. Trump is committed to promoting "decoupling" from China, imposing tariffs on Chinese goods, and initiating semiconductor export restrictions to China. Harris has also stated that "in future key industries, the U.S. cannot stand by and let China take the lead."

(B) Differences

1) Regarding Foreign Trade, Trump will promote a more aggressive tariff policy, while Harris's tariff policy is relatively moderate. Trump's foreign trade policy mainly includes: imposing a 10% baseline tariff on imported goods, revoking China's most-favored-nation status, and imposing a 60% tariff on Chinese goods. Harris opposes Trump's comprehensive tariff policy but has not proposed new trade policies, possibly maintaining the status quo or providing trade protection for certain industries.

2) Regarding Tax Cut Policies, Trump advocates for large-scale domestic tax cuts, including making the Tax Cuts and Jobs Act permanent and further reducing taxes for businesses, while imposing tariffs externally; Harris focuses on tax cuts for low- and middle-income groups and increasing taxes on the wealthy and large corporations.

3) Regarding the Path to Energy Independence, Trump emphasizes the development of traditional fossil fuels, while Harris continues Biden's policies, increasing support for clean energy.

4) Regarding Immigration Policy, Trump is more hardline, while Harris is relatively moderate. Trump plans to carry out the largest illegal immigration deportation operation in U.S. history.

II. Election Situation Analysis: Trump and the Republican Party Temporarily LeadTrump's poll support and betting odds both lead Harris. According to RCP, as of November 2, Harris's national poll support rate is 48.1%, while Trump's support rate is 48.4%. At the same time, Trump leads Harris by 10.6 percentage points with a betting win rate of 54.7%, although the lead has narrowed.

Currently, Trump leads in five key swing states. According to RCP, as of November 2, Trump leads in five key states, while Harris has secured Wisconsin and Michigan, with the electoral vote outcome potentially resulting in Trump winning with 287 votes.

The Republican Party, to which Trump belongs, is leading in congressional elections. According to RCP, as of November 2, in the House of Representatives, the Republicans temporarily lead the Democrats with 201 seats to 192; in the Senate, the Republicans temporarily lead the Democrats with 50 seats to 43.

III. The market bets on the "Trump trade," but should remain cautious of the "Harris surprise."

Recently, the capital market has widely bet on the "Trump trade," with the dollar and Bitcoin strengthening, while U.S. bonds are under pressure. From October 1 to November 1, the dollar index rose by 3.1%, with Bitcoin, Ethereum, and Dogecoin reaching maximum increases of 20.5%, 16.9%, and 68.2%, respectively, while the yield on the 10-year U.S. Treasury bond rose by 63 basis points.

However, the election situation in swing states is tight, and Harris still has a chance of winning, so market correction risks should be noted. The two candidates have alternated victories in swing states, and their poll support rates differ within the statistical margin of error of 2-3 percentage points.

(1) Trump trade: favorable for the dollar, U.S. stocks, and Bitcoin, while U.S. bonds are under pressure.

Trump's economic plan will trigger a "re-inflation risk" in the U.S., supporting a stronger dollar and putting pressure on U.S. bonds. If Trump's economic plan is fully implemented, it will lead to a large-scale deficit. Additionally, domestic tax cuts, combined with tightened immigration policies and increased tariffs, will further amplify the supply-demand contradictions in the U.S., leading to an upward risk of "re-inflation." Repeated inflation may slow the pace of Federal Reserve interest rate cuts or even tighten monetary policy, which is favorable for the dollar but unfavorable for U.S. bonds.

Trump advocates for corporate tax cuts, which will support U.S. stocks. From a sector performance perspective, it is favorable for fossil energy, cryptocurrencies, manufacturing, and artificial intelligence sectors.

(2) Harris surprise: dollar, U.S. stocks, and Bitcoin may correct, while U.S. bonds and new energy sectors benefit.

Compared to Trump, the re-inflation risk triggered by Harris's policies is smaller, providing a window for the Federal Reserve to cut interest rates, which is favorable for U.S. bonds and puts pressure on the dollar. The fiscal deficit scale of Harris's policies is significantly smaller than Trump's, and due to her more moderate stance on tariff and immigration policies, the supply-side inflation pressure is lower.

Harris's proposed corporate tax increases and capital gains tax hikes are unfavorable for U.S. stocks. From a sector performance perspective, a Harris victory would benefit the new energy sector and may trigger a correction in cryptocurrencies.

IV. How will the U.S. election affect the Chinese economy and asset prices?

(1) Macroeconomics: A Trump victory will impact Chinese exports, while Harris's negative impact is relatively smaller.If Trump is elected and imposes tariffs on Chinese goods, it will have a certain impact on China's exports in the short term, dragging down economic growth. China needs to further accelerate the adjustment of its export regional layout and enhance the overall competitiveness of its exports.

Harris basically continues the trade policy of the Biden administration, with relatively small impact on Chinese exports.

The U.S. will intensify its technological "blockade" against China. There is a consensus between the two parties in the U.S. to curb China's technological development, and regardless of who is elected, there will be an increase in "technology sanctions" against China.

(2) Performance of major asset classes: If Trump wins, it will be negative for the RMB exchange rate and A-shares; if Harris wins, the RMB exchange rate may rebound.

Regarding the exchange rate, if Trump wins, there will be depreciation pressure on the RMB; if Harris wins, the RMB exchange rate may rebound. If China-U.S. trade frictions escalate further, combined with a strong dollar, it will have a significant impact on the RMB exchange rate. Harris's tariff policy is milder, with a smaller impact on the economic fundamentals, and if Harris wins, the RMB exchange rate will see a rebound.

For A-shares, if China-U.S. trade frictions escalate, it may drag down economic growth, affecting market sentiment and risk appetite, which will have a negative impact on A-shares. At this time, stronger policy stimulus and structural reforms are needed.

Risk warning: U.S. election results exceed expectations, changes in U.S. policy towards China exceed expectations.

Source: Huibo