Economic Impacts of the 2020 Election
Author: Eugene Guo | Editor: Nichola Monroe | Updated October 28th 2020
The quadrennial U.S. Presidential Election is to begin soon on Tuesday November 3rd of 2020. With United States’ present influence on the global economy, the US presidential election is an event which will significantly impact the economy.
The two top candidates for the presidential election are Joe Biden of the Democratic Party, and current president Donald Trump of the Republican Party. This article is going to specifically focus on the most likely outcome of the election and the economic impact that it is going to bring.
2020 Election Outcome Predictions
Though history favors the sitting president, Trump at present has one of the worst approval ratings for sitting presidents, and the current elections polls are all in favor of candidate Joe Biden. As of October 26th of 2020, Biden currently has 352 electoral votes compared to estimated 186 electoral votes for Donald Trump. This disparity in electoral votes seem to be still growing, as seen by a graph published by The Economist:
The growing difference in electoral votes on top of many other factors such as the current economic downturn and social unrest has led to a rise in political analysts and economists predicting the success of Biden in the election. One of the most notable of these predictions is by Allan Lichtman, an American history professor who is famous for correctly predicting all presidential-election outcomes since 1984. Through his renowned 13-point model, he predicts that Joe Biden will win the 2020 election.
However, it is noteworthy that the S&P 500 index has performed extremely positively since August of 2020 with the best recovery the market has ever seen since 1986. This is important as the performance of the S&P 500 index is a key indicator for election outcomes, with a recent positive performance usually indicating a victory for the incumbent party. This prediction method has a track record of being correct since the 1980 presidential election and has had a successful prediction rate of 20/23 when you look at elections beginning in the early 1920s.
Looking at all the information collected, it is reasonable to expect an extremely close race for the 2020 election with Joe Biden currently on top as the more favorable candidate to win.
2020 Election Impacts
Short Term Market Impacts:
Short term market impacts for elections are fairly predictable with the election of the two presidential candidates. Though there is no correlation to long term economic success, historically if a republican president is to win in a close race, the market would react positively, whereas a democratic party win would result in a negative market reaction. This is because of the usual pre-conception that a republican president is better for the stock market.
Moreover, incumbent party wins usually result in a higher average stock market gain at 6.5%, compared to 5% for new party wins. This is usually a result of stable and consistent economic policies benefiting the economy.
With this in mind, it’s easy to conclude that the re-election of president Donald Trump would result in a greater short-term stock market success compared to new party candidate Joe Biden.
China Trade War Policies:
The 2020 election is likely going to affect the outcome of the trade war against China. Both candidates are likely to continue with the concerns about China, but Biden’s election is likely going to result in a smoother renegotiation with the Chinese government on the issue, as his administration would not have to carry the policies left by the Trump administration. This point is further backed up by the following graph:
This graph from JP Morgan Asset Management illustrates the higher republican support for policies against China, giving support to the fact that Biden may be less aggressive on trade war policies. That is not to say, however, that Biden’s election could not mean a more aggressive approach on the issue, encouraging the involvement of Americas allied countries. A new president usually results in volatility and unpredictability in political policies, and Biden is no exception.
The re-election of Donald Trump would almost certainly result in a continuity of the current China-US relationships, as it would be the same administration in office. There is also the possibility that the re-election may lead to an even more severe push of trade war policies for Trump, as he takes his election victory as a confirmation for his trade-war actions during presidency.
An on-going US-China trade war with no party likely backing down would continue to have negative impacts on the global economy. Increasing tariffs and continuing tensions would create a slowing or negative GDP growth, and cause trade-reliant countries such as Korea and Japan to struggle.
This article won’t go in depth into the negative impacts of a continuing US-China trade war. Those impacts will be discussed in an upcoming article. For now, it is important to note that based on current conditions, the Trump administration seems to have an unfavorable trade war intention when compared to Biden’s administration.
Lallic Partners LLC