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The presidential election and the markets

The next Presidential election will be on 3 November next year, but such is the nature of US politics that it is already being much discussed.

The next Presidential election will be on 3 November next year, but such is the nature of US politics that it is already being much discussed.

John Redwood

in Features


President Trump is trying to ensure a strong economy for the end of 2020, with action on his central campaign promises of 2016 over tax, borders, growth and trade foremost on his mind. His current wish for lower interest rates and a more relaxed stance by the Fed comes from his understanding that monetary action now will influence the mood and economic outcome in the run up to the ballot. He has recently proposed two dovish members for the Fed to fill positions on the Central Bank Board.

Meanwhile, the Democrats are making some progress in winnowing down their long list of 25 candidates to find the perfect contestant to take on President Trump. The early primaries next February are attracting attention and political action by candidates. It looks as if the internal struggle to decide how statist the Democrat offer should be is going Bernie Sanders way. As the dogged and nearly successful challenger to Hillary Clinton for 2016, Mr Sanders has consistently pushed a left wing agenda. He has stood out against the traditional view that a successful Democrat candidate has to move towards the Republicans, avoiding unduly higher taxes and keeping the appetite for extra public spending under control to attract moderate voters.

Increase the state

The Senator has instead advocated higher taxes on the rich and large companies, universal free health care, free college education for the many, cancellation of past student debt, a $15 minimum wage and a drive against corporate corruption. Today he is one of the top four candidates on just such a wide ranging agenda. He believes a larger state and higher taxes for some will be a winning ticket, matching Trump populism with a left-of-centre populism based on bigger government.

Two of the other three front runners have signed up to much of this agenda. Elizabeth Warren wants higher taxes for the rich, state money for students, a more generous childcare plan and reduced shareholder power. Kamala Harris wants universal Medicare, equal pay, abortion reform and immigrant rights. These two female candidates wish to push the Democrat party in a liberal direction in many areas, and favour the larger state that Bernie Sanders has championed.

Joe Biden is currently in the lead amongst the top four, but still typically is polling less than a quarter of the vote in the latest polls. He is said to be the moderate candidate, offering a more traditional Democrat response to a Republican incumbent. Even he, however, wishes to tax the rich more, offers free college education, a $15 minimum wage, a higher child tax credit and a strong position for workers. Bernie Sanders should be well pleased with his enduring campaigns. Things that seemed unrealistic to mainstream Democrats a couple of elections ago are now widely adopted amongst Democrat hopefuls.

Leftward move

The essence of campaigns largely within a single party to choose a candidate is winning over party members and voters who are strongly committed to the party’s philosophy and stance. This group is likely to include more believers in change and radical proposals than the wider electorate. With three strong candidates to his left, Joe Biden is under more pressure to adopt further features of the Sanders approach. He has avoided too many commitments so far, but the campaign trail and debates will force greater definition on him.

Investors have to adjust to the likelihood that the Democrats will end up with a candidate with a more radical platform than previous Presidential hopefuls. The platform is likely to include more regulation and taxation for the rich and for larger companies, and a large role for the state in welfare, health and education. Meanwhile the President is determined to deliver a strong economy with more and better paid jobs, in the belief that this will get him back into office despite the strong backlash against some of his tweets and attitudes towards migration and people not within his chosen coalition of supporters. The Democrats will need something and someone different to wrestle support away from Mr Trump in those former Democrat heartlands that he took in 2016.

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