Transatlantic Tides: The 2024 U.S. Election and Its Global Economic Implications

• ‍Impact on Global Energy Markets: Former US President Donald Trump's energy policies, particularly his focus on increasing U.S LNG production, have significant implications for Europe. This could lead to favourable market conditions and lower prices for European importers due to an anticipated global LNG supply increase by 2025/2026. However, it could also introduce volatility, as Trump's administration may use LNG exports as leverage in trade negotiations, creating uncertainty for European businesses reliant on stable and affordable energy supplies.

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• Economic Strategies and Risks: Vice President Kamala Harris’s economic agenda focuses on increasing taxes on higher earners and corporations to address economic inequality. This could lead to more cautious investment strategies by U.S. corporations and impact international markets. In contrast, Trump’s continued tax cuts and deregulation could provide short-term economic boosts but risk significantly increasing the U.S. fiscal deficit and fuelling inflationary pressures, which could have global repercussions.

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• ‍US-EU Relations and Trade: Trump's protectionist trade policies, including proposed tariffs on Chinese imports, are designed to protect American industries but could strain U.S.-EU relations and disrupt global supply chains. In contrast, Vice President Kamala Harris's approach emphasises strengthening international trade agreements, which could stabilise transatlantic economic ties but might face challenges balancing domestic interests with global commitments.

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• European Security Concerns: Harris and Trump's contrasting approaches to the Ukraine conflict will likely have significant implications for European security. Harris advocates for continued U.S. support for Ukraine, reinforcing transatlantic ties. At the same time, Trump’s preference for a swift resolution, potentially favourable to Russia, could undermine European security and weaken NATO’s collective defence strategy.

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This year, not only will the US President be elected, but also the Electoral College, alongside all 435 seats in the House of Representatives and 33 of the 100 seats in the Senate. After a disastrous debate against former US President Donald Trump, President Joe Biden was convinced by his party not to seek re-election after his approval rating plummeted to record lows both within and outside his party. The Democrats quickly nominated Vice President Kamala Harris as its prospective candidate, leading to unprecedented unity within the party. According to the Wall Street Journal’s latest polls, her approval rating has since overtaken Trump's. Additionally, her selection of Tim Waltz as her running mate has added extra momentum to her campaign.

This last-minute candidate change for the Democrats has completely shifted the balance of this electoral cycle, with Vice President Harris making up critical ground in swing states that Trump had previously been leading Joe Biden in by a large margin (+5% in some states). Despite Harris’ ability to make up this ground, the race between the two leading candidates is razor-thin and will likely remain so until the last minute. As such, Proximities examined during this week's impact study what their policy programmes are and how they could impact not just the US but also Europe and their business operating environments as well.

Trump's Domestic and Economic Policies

Despite the public knowing little about Kamala Harris outside of her role as Joe Biden’s vice president, Donald Trump and his policy package under a second presidency remain the biggest wildcard for businesses. Donald Trump's domestic policies emphasise conservative values, particularly on issues like abortion and immigration. While he has not explicitly endorsed a federal abortion ban, his praise for the Supreme Court's decision to overturn Roe v. Wade and his advocacy for state-level control over abortion laws suggest a decentralised approach. On immigration, his law-and-order stance remains strong, with calls for increased police funding and harsher penalties for drug-related offences. Similarly, Trump’s proposed policies include initiating the largest deportation effort in U.S. history and reinstating the "Remain in Mexico" policy.

Economically, Trump aims to extend the 2017 tax cuts, including reducing the corporate tax rate to as low as 15% and eliminating taxes on Social Security income and tips. As many of these tax cuts expire by the end of 2025, Trump aims to extend them to drive economic growth—a goal many economists warn could lead to a larger U.S. fiscal deficit. Trump’s protectionist trade policies, particularly his proposed tariffs of up to 60% on Chinese imports, are designed to protect American industries but could create an unfriendly trade environment and heighten the risk of a return of US-China trade tensions and tariffs. This could threaten to disrupt EU businesses that are heavily dependent on US and Chinese supply chains for goods and materials, such as renewable energy or technology.

Impact on the Energy Market and European Businesses

One sector that is likely to be particularly hindered by a Trump presidency is Europe’s traditional energy industry. Trump’s energy policy advocates for reviving the fossil fuel industry. He has pledged to dismantle environmental regulations, accelerate natural gas pipeline approvals, and withdraw from the Paris Climate Agreement once more. These actions will likely boost U.S. fossil fuel production, but they also risk undermining global climate initiatives and destabilising energy markets, particularly in Europe.

Trump has placed a particular focus on increasing U.S. LNG production, which could have significant implications for Europe, including the Netherlands. The European Commission has already negotiated contracts for LNG imports to meet the continent's energy needs, but these contracts come with challenges. The delay in issuing new LNG export licenses agreed upon between the U.S. Department of Energy and the European Commission in January 2024 has increased Europe's dependence on American LNG. This dependency is critical for construction and iron melting industries, which rely heavily on a stable and affordable energy supply.

However, independent analysts predict that by 2025/2026, there will be a global increase of 50% in LNG supply due to production from Qatar and the U.S., potentially shifting the market dynamics. This shift could turn the LNG market into a buyer's market, leading to lower prices and more favourable contract terms for European importers. For businesses in the Netherlands and across Europe, particularly those in energy-intensive industries, this shift could mean more favourable contract terms and reduced energy costs. Nonetheless, Trump's energy policies could also introduce volatility into the market, as his administration might use LNG exports as leverage in trade negotiations or to exert pressure on European allies. This uncertainty could impact long-term planning for businesses dependent on LNG.

In contrast, under her "opportunity economy" agenda, a Harris presidency could boost consumer spending in sectors like housing and consumer goods by expanding tax credits and financial support for middle- and lower-income households. These measures are designed to fund expansive social programs, such as the expanded Child Tax Credit restoration, which could raise the credit to $3,600 per eligible dependent and introduce a new $6,000 credit for newborns. However, while reducing child poverty to record lows, these initiatives are projected to add $1.7 trillion to $2 trillion to the federal deficit over the next decade, raising concerns about the long-term fiscal sustainability of the US economy. As such, U.S. corporations could be prompted to adopt more cautious investment strategies, potentially resulting in less outward investment towards international markets.

Vice President Harris has also proposed significant reforms in the US housing market, including up to $25,000 in down-payment support for first-time homebuyers and tax incentives for builders constructing affordable homes. While these measures aim to address the housing shortage and promote homeownership, critics warn that they could drive up home prices by increasing demand without a corresponding increase in supply. Similarly, in healthcare, Harris’ proposals, such as a $2,000 annual cap on out-of-pocket prescription drug costs and a $35 monthly cap on insulin prices, are intended to alleviate financial burdens on Americans. However, these programs' overall costs and economic impacts remain points of contention.

Global Trade and Price Control Policies

In the realm of trade, Harris has positioned herself in stark contrast to Donald Trump. She has criticised Trump’s proposed 20% tariff on Chinese imports as a “national sales tax” that would raise the cost of everyday goods by $3,900 for the average American family. Harris argues that such tariffs harm the economy by increasing prices and inviting retaliatory trade measures from other countries, thus impacting American consumers and global trade relations. However, Harris’ proposals, such as federal price controls on food and groceries to combat price gouging, have drawn criticism. Economists warn that such controls could lead to market distortions, including shortages and higher prices.

Impact on Financial Markets and Business Environment

Harris' economic agenda also targets perceived inequities in the financial markets, particularly concerning Wall Street’s role in the housing market. Her plans to limit "predatory" investments and provide substantial support to first-time homebuyers are intended to make housing more affordable. Nonetheless, there is concern that these policies could inadvertently reduce investment in housing development, worsening the housing shortage. Additionally, Harris’ proposal to eliminate federal taxes on tips, a policy also endorsed by Trump, has been criticised as a populist measure that would reduce federal revenue without substantially benefiting low-income workers. Economists suggest that a more effective strategy to support service workers would be to increase the federal minimum wage rather than remove taxes on tips.

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While the two candidates differing economic policies have remained the focus of much political commentary, an equally important difference is the two individuals’ security policies. Most notably, the contrasting approaches of Kamala Harris and Donald Trump to the Ukraine conflict could have significant implications for European security. Harris has consistently aligned with the Biden administration’s support for Ukraine, emphasising the importance of U.S. leadership in countering Russian aggression. She has been a vocal advocate for continued military and financial aid to Ukraine, including the recent $1.5 billion commitment for infrastructure, security, and humanitarian assistance. Harris’ approach reflects a commitment to maintaining the stability of Europe and ensuring that the U.S. remains a reliable ally in the face of Russian expansionism.

In contrast, Trump has called for a swift resolution to the conflict, often suggesting that the war in Ukraine could be ended on the first day of his presidency. His approach has raised concerns among European leaders that a Trump administration might prioritise a peace deal favourable to Russia, potentially undermining Ukraine’s sovereignty and security in Eastern Europe. Trump’s rhetoric about overhauling U.S. intelligence and defence structures suggests a potential shift in U.S. engagement with NATO and European allies. Such a shift could have long-term consequences for the security architecture of Europe, potentially weakening the collective defence strategy that has been a cornerstone of European stability since World War II.

Currently, Harris is viewed as the favourite to win; however, Harris’ prospects in key swing states – e.g., Arizona, Pennsylvania, or Wisconsin - will be critical to determining the election’s outcome. According to the latest polls, Harris is highly competitive with Trump in Arizona, while she holds a proper lead in Pennsylvania. In Georgia, the race is extremely close, with Harris either even with or barely trailing Trump. In Wisconsin, she has built a significant lead, which could prove crucial. In contrast, the race remains highly competitive in North Carolina.

Further complicating the prediction of the race's outcome, independent candidate Robert F. Kennedy Jr. has officially endorsed Trump following speculation that Trump promised Kennedy a position in his administration if he won the election. This endorsement may consolidate Trump's base, potentially drawing support away from any remaining conservative-leaning third-party candidates and shifting the dynamics in some key states.

Despite uncertainty around the race, neither candidate is without its costs and benefits for the global economy and businesses. While Harris’s policies might offer more stability and continuity for the U.S. and its allies, they come with the challenge of managing increasing fiscal deficits that could lead to reduced US FDI towards Europe. Conversely, while offering potential short-term gains for certain sectors, Trump's approach could lead to greater economic and geopolitical instability, particularly in Europe.

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What Now?

Proximities can help you gain key insights and turn them into tangible material. Using our ‘What?’, ‘So What?’, ‘What If?’, and ‘What Now?’ narratives, we help partners and clients not only understand the importance of trends and events but, more specifically, to understand what it means for you and your business from a strategic to operational perspective. If you want to learn more about how Proximities can help you mitigate these risks, do not hesitate to contact us at info@proximities.com.