US Election:
How will Kamala Harris manage trade and foreign policy?

Is the US headed for a Democratic presidency?

The 2024 US Presidential Election is still too close to call. Opinion polling shows Democrat Kamala Harris ahead nationally, and if state-level results come in exactly in line with the average of polls in the last week of September, Kamala Harris would – narrowly – win the electoral college, and so the presidency. But very small moves, less than 2% in decisive swing states, could see Trump win. This 2% swing is well within the range of recent polling moves, and in most of these states within the polls’ margin of error.

How different are the two candidates?

The two candidates have major differences in terms of foreign policy, and more cosmetic ones on international trade. So far, the Democratic candidate has not made major foreign policy announcements, focusing instead on attacking the record of former president Donald Trump on the world stage. In terms of focus regions for foreign policy, their differences are significant, with Vice President Harris a committed interventionist. Harris accuses Trump of neglecting the US presence in Eastern Europe, while on the Middle East and China their foreign policy positions are similar.

Protectionism

In truth, despite major differences in rhetoric between the two candidates, their stated intentions on trade policy are quite close. Protectionism – the support of trade barriers to support domestic industry – is today more associated with Trump’s Republican Party than the Democrats, but since 2016 the long-standing American consensus in favour of free trade has steadily eroded. As Vice President of the Biden administration, Kamala Harris worked to place restrictions on the export of technology to China and has told reporters she would have voted against the 1994 North American Free Trade Area (NAFTA). Despite this, Harris stops short of calling for further tariffs, claiming that ‘the US lost the trade war’ which took place in the previous Trump administration.

“Rhetorically, Harris has come out strongly against Trump’s proposed tariffs, calling them a ‘tax on consumers’ and ‘Trump’s trade tax’ in recent media appearances. But the policy reality is more complex.”

Trade, tariffs, and China

President Biden did not reverse the tariffs implemented by Trump, but did not introduce additional protectionist measures either. It seems Harris is likely to continue this neutral policy and has shown some willingness to support protectionism. As Vice President, Harris has publicly criticised China for intellectual property theft from American companies. However, the Democratic candidate prefers a different approach to Trump’s blanket tariffs against China and does not support the universal 10% tariff against all foreign goods. Instead, Harris hopes to ban or regulate technology exports to China, trying to preserve the technological advantage of US manufacturers. The rationale for this is balancing the protection of US manufacturing companies with the increased costs for consumer goods that could follow tariffs. Rhetorically, Harris comes out strongly against Trump’s proposed tariffs, calling them a ‘tax on consumers’ and ‘Trump’s trade tax’ in recent media appearances. But the policy reality is more complex, with a consensus across the Democratic and Republican parties that the US should be more aggressive about Chinese economic competition. Overall, the differences between the two candidates are real, but more subtle than they first appear. This will complicate the market reaction to a Harris victory, since she is not a straightforward free trade, anti-protectionist candidate, and so the logic of the Trump trade may still apply in a Democratic presidency.

Foreign policy: continuity candidate?

In the presidential debates, Harris stressed her determination to continue the foreign policy commitments of the Biden administration, in particular in Eastern Europe and the Middle East. Her strong support for interventionism abroad has led to many Republicans, often senior figures from the presidency of George W. Bush to endorse the Democratic candidate. It is not clear whether these defections have any impact on the overall outcome of the election, but they do show a cross-party consensus in support of Harris, at least within the foreign policy establishment. These commitments, which will lead to sustained increases in defence spending, are likely to benefit defence stocks and arms manufacturers. Traders should remember, however, that Harris’ foreign and trade policy are very close to the existing policies of the Democratic Biden administration, in which Harris has played a key role. So, any market reaction is likely to be more muted than following a Trump victory, as Harris’ foreign policy positions represent continuity rather than change.

Potential market impact

Should Harris win, or polling numbers diverge to the point where her victory seems likely, the most significant market impact will be the unwinding of the Trump trade. Although Harris has promised more aggressive action against Chinese trade practices, the absence of an open trade war will be viewed as a positive for some assets, and a negative for others. Chief amongst the potential winners are emerging markets currencies (short USD/MXN especially) and consumer goods companies that rely on imports. Conversely, both the US Dollar and US manufacturing stocks may weaken if the Democratic candidate wins. Harris’ credentials on defence could also be a boon for defence stocks, and companies with extensive US military contracts. Aircraft manufacturer Boeing is a good example of a potential ‘Harris trade’ stock.

‘Harris trade’ – short lived spike or market rotation?

The market reaction following a Harris victory would largely result from her perceived positions on foreign policy and trade policy. That means an unwinding of the much-discussed Trump trade, pressure on the US Dollar, and strength in emerging markets currencies and consumer goods companies. But Harris is not a free trade candidate, and has indicated not only that existing tariffs will remain in place, but that she may introduce non-tariff measures to target Chinese industry. In other words, the trade tensions between the US and China would continue, but less overtly. That means any potential rebound of import-benefiting assets could be short lived. Managing volatility around the election means understanding both the likely short and long-term moves that could follow a Harris victory in 2024, and trade is likely to be at the centre on post-election volatility.

Conclusion

The 2024 US Presidential Election will be fought in part on American trade policy, one of the key areas where candidates Kamala Harris and Donald Trump differ. The Harris trade stance is not as aggressive as Trump’s, but perhaps more so than it appears on paper. Although Harris has publicly criticised Trump’s 60%/10% tariffs plan, she supports targeted technology export restrictions to China, and said she would have voted against NAFTA in 1994. That makes a return to the US China trade war possible, despite the softened rhetoric of the Democratic candidate.

In terms of market reaction, Harris’ trade policy may have a mixed impact. If her polling numbers rise, or if she wins the 2024 presidential election, the Trump trade could unwind, potentially causing losses in the US dollar and industrial stocks. That is despite Harris’ support for more moderate variations of some of Trump’s trade policy. Although she has not made major, specific announcements on trade, Harris’ plans should be seen in terms of continuity with the Biden administration, a government Harris has worked at the heart of since day one.

When it comes to foreign policy, a Democratic victory is likely to be good for defence stocks, with gains expected in US weapons manufacturers, logistics companies, and other companies with major defence contracts. As always, CFD traders should ensure they follow risk management best practices and remain vigilant when trading in the asset classes most likely to be impacted by the upcoming presidential election.

FAQs