The US presidential race and markets

Everything Donald Trump does now seem to be geared to the presidential election, which is still more than a year away. The Democrats are also laying out their policy stalls.


On a daily basis, the White House puts out news related to the president’s pledges in the 2016 election, designed to demonstrate that he is working away to deliver what he promised. The emphasis is on jobs and the economy, living standards and take-home pay, levels of inward migration, getting troops back home or out of harm’s way in the Middle East, and tackling the opioid crisis. Meanwhile his Democrat opponents are uniting to press for his impeachment over his handling of allegations about Joe Biden and his son when in discussion with the government of Ukraine.

On the Democrat side this week comes the second big debate between 12 hopefuls seeking the candidature. It is already the case that just two candidates have emerged as way out ahead of the rest in the polling so far, with most of the 12 struggling to get more than 3%. The front runner, Joe Biden, has seen his lead slip, so that this month his ratings and those of Elizabeth Warren are very close with both around 37%. Bernie Sanders, who gave Hillary Clinton a long and tough race to the nomination in 2016, has fallen back to 15%, with no-one else in double figures.

Age not a factor

It was Ronald Reagan who memorably dealt with the charge that he was too old to run for President with the jibe that he did not wish to make age an issue as he did not want to show up his rival’s inexperience. He became President at 69, when it was more common for a President to be in their 50s. Donald Trump became the oldest man to be elected for the first time, achieving it at 70. The Democrat platform is long on experience, with Joe Biden at 76, Bernie Sanders at 78 and Elizabeth Warren at 70. Anyone of them would be the oldest person to be elected President should they succeed. It means they cannot use the age argument against the incumbent. Both Joe Biden and Bernie Sanders would be older than Reagan was on leaving office after an eight-year term were they to run.

It looks likely that Elizabeth Warren will extend her lead over Bernie Sanders, owing to his recent ill health and sliding ratings. They are both on the socialist wing of the Democrat party. Either of them could make a good challenger to Joe Biden, trying to drive the party’s programme leftwards. It is traditional in closely-fought primary races within a party in the US for the candidates to have to firm up the policies and attitudes that most appeal to the committed party members. Joe Biden is having to move towards Elizabeth Warren in order to keep his position in the contest.

The leading Democrats all agree the rich need to be taxed more. Joe Biden, the more moderate, says he wants to “reverse the excesses of the Trump tax cuts for corporations, reducing incentives for tax havens”. He also wants to “roll back the tax cuts for the wealthy”. There are plans to raise the top rate of income tax, increase the incidence of capital gains tax, and close more tax loopholes. They all wish to regulate and tax the technology companies more. They all wish to defend the Obama Affordable Care Act and go further in cutting the costs of care for those on low incomes, extending public health options. They favour more generous tax credit regimes.

A green US?

They all think the US should do much more to tackle man-made carbon dioxide and have detailed plans to set a net zero target and press on with clean energy. There is huge enthusiasm amongst all the candidates to put the US into the EU mainstream on cutting carbon dioxide emissions and rolling back big oil. Joe Biden plans a world “Summit for democracy” if elected, to illustrate the US’s wish to re-join the international rules-based system of global authorities and treaties. He is keen to stress the need to prevent new technology being used for repression of people. He wants to relax controls on the borders, remove travel bans and allow in more refugees.

Elizabeth Warren is angry about capitalism, stating that she is “tired of big financial firms looting the economy”. She wishes to “end Wall Street’s stranglehold” and hold “Wall Street accountable”. She wants a tax on excessive lobbying, control over corporate debt levels, cancellation of various student loans, tougher banking regulation and higher taxes on private equity. She proposes a minimum wage of $15 an hour, with free Medicare and free childcare for those on low incomes. She wishes to demerge certain companies taken over by Facebook, Amazon and Google, and to turn some big technology companies into regulated platforms. Her wealth tax starts at $50m with a 2% charge, rising to 3% on assets over $1bn. She proposes higher taxes and new controls on private equity and a Glass-Steagall Act for banking to separate investment banking from commercial banking.

The continued attack on the president over conduct issues will sour the debates and increases the risks for the Trump re-election team. The Democrat competition through the early primaries is likely to be tough, with candidates having to burnish their credentials by setting out more radical policies that are attractive to the party activists more than the mainstream voters. If it’s the “economy stupid” as the Clinton campaign once said and Donald Trump believes, there may still be enough pace and growth in jobs and real incomes to see Trump narrowly home. Markets do, however, need to weigh up the risks and rewards from a Democrat challenger who will be very different from Donald Trump on taxing the rich and the larger companies, on energy, green issues and healthcare.

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John Redwood is Chief Global Strategist at Charles Stanley & Co. Limited, which is authorised and regulated by the Financial Conduct Authority.

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