
Courtesy NBT Bank
By Kenneth J. Entenmann, CFA on November 6, 2024
After an emotional charged election season (and way too many advertisements!), the nation has thankfully provided a clear election result…no hanging chads, no contested ballots or riots on the National Mall. Our President Elect will be Donald J. Trump, and the Senate will be under Republican control, with only the degree of control to be determined. At the time of this writing, control of the House of Representatives is still undetermined, but the Republicans are likely to maintain the majority. A Red Wave! Like it or not, the results appear to be definitive. We can now turn our attention to what this means for the economy and financial markets.
While every election provides myriad promises, threats and forecasts of booms and doom, elections rarely have an immediate impact on the economy. Even in the case of a clean sweep, historically it takes months and often years for campaign platforms to be codified into law and implemented. Our economy is a $24 trillion behemoth, and it takes much to materially move it in the short-term. Nonetheless, this election does have some interesting focal points. Tariffs, taxes, and regulation to name a few and they have implications for the equity and fixed income markets.
Economists don’t agree on much, but they uniformly do not like tariffs. Tariffs are an anathema to free market advocates. All things being equal, tariffs increase the cost of goods and invite retaliation from other countries and reduce overall economic growth. In short, tariffs are seen as inflationary and anti-growth. However, this assumes an actual free and fair market, something that rarely exists in the real world. We live in a world where all things are not equal! In particular, China is not a free or fair player in the global economy. Nor are many of our “friends” in Europe. Are Trump’s threatened tariffs simply a cudgel for future trade negotiations, designed to get better trade metrics for the U.S. economy? It remains to be seen. For those who oppose tariffs, they need to explain how they will get the rest of the world to change their anti-free trade behavior. Even if the tariffs are fully implemented and are inflationary on the margin, there will be other counter acting policies that may mitigate the tariff impact. For example, tariff revenue could partially help “pay” for lower taxes on corporations and individuals. One could expect less overall Government spending as well. And perhaps a most Orwellian Dept. of Government Efficiency spear headed by Elon Musk!