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US election: 4 scenarios in a nutshell

As we wait for the US election results the table presents the economic implications of 4 different scenarios, depending on who wins the Presidency and who wins the Senate. Market expectations are for the Democrats to take both, which is the final column. But that is not a done deal.

With a majority in the Senate (as well as the House) Biden would be able to move ahead with a substantial part of his programme. Assuming it is not passed by Trump before inauguration, the first item on his agenda would be a big new Covid stimulus package,. Expect big spending on infrastructure and green programmes. Down the road expect tax hikes on those earning over $400,000, with tax cuts for the middle classes. Even more important as a stimulus might be a $15 Federal minimum wage. On the international side, Biden is likely to dial down the trade war and work more closely with allies, but remain tough on China.

If Biden wins but the Democrats fail to take the Senate, he will be more constrained. The changes outlined above will likely still happen, but in a more muted way. That said, don’t expect his whole programme to be quickly implemented even with a Democratic Senate. That is not how US politics works.

What if Trump wins? Probably more of the same, if the Republicans hold the Senate too. And there might be even more trade friction, especially with Europe. If the Democrats take the Senate, however, there could be some interesting changes. Trump has often talked of infrastructure spending before. With a Democratic Senate, this would be easier to get past the fiscal hawks.

Hopefully we will have a clear election result very soon.


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