This article first appeared in The Edge Malaysia Weekly on November 4, 2024 - November 10, 2024

ON Tuesday, Nov 5, Americans will go to the polls to elect their 47th president. Incumbent Joe Biden’s four-year term of office ends at noon on Jan 20 next year, when a new president will be sworn in. Since mid-July when Biden, 82, announced that he would not seek re-election, the race has literally been tied between Vice-President Kamala Harris, 60, and the 78-year-old former president Donald Trump.

So, who will win the election? Honestly, I don’t know. If anybody tells you they know who will win, they are bluffing. Right now, the consensus view is: Trump and Harris are 48-48, with about 2% undecided and minority party candidates taking the rest. Election betting sites are often a good indicator of who might eke out a victory. Voters putting their own money at risk must know something. Betting sites are predicting a 64% chance of a Trump win. Prediction venue Polymarket, on which Americans are not allowed to bet, gives Trump a 67% chance of winning. But Polymarket bets have been skewed by recent bets like a US$30 million (RM131.4 million) wager on Trump by a French whale. If you exclude a handful of whales, even betting sites are predicting a very, very close race.

Why is the race so close? In the aftermath of the 2020 pandemic and Russia’s invasion of Ukraine in 2022, that led to supply chain snarls and triggered high inflation and higher interest rates, voters around the world have been punishing incumbent governments. Just this past week, Japan’s long dominant Liberal Democratic Party lost its majority. As a nation, the US has been politically evenly split between Democrats and Republicans since 2000 when George W Bush, a Republican, narrowly beat Democrat Al Gore, the then incumbent vice-president, by just 537 votes in Florida, out of 5.83 million cast in the state, despite his convincing majority in popular votes.

America is still seen globally as the shining city on a troubled hill. It has been the fastest growing of large global economies in recent years. The key drivers of this growth include an ultra-innovative Silicon Valley powering the country’s tech sector and extremely nimble companies that put efficiency and shareholder returns above everything else. The US stock market, which now makes up about 64% of all listed global stocks by value, is up 23% this year, nearly 52% over the last two years and over 770% from the lows of March 2009. Rising home prices and the stock market have lifted the net worth of US households from US$116 trillion to US$163.8 trillion, or an increase of US$47 trillion since the start of pandemic in early 2020 - the biggest wealth creation in any economy over five years. The unemployment rate is close to a 50-year low. Inflation is down from 9% at the peak in 2022 to 2.4% now and the US Federal Reserve has just begun slashing interest rates.

You might think that should be enough to pull an incumbent government over the line even in a close election, but nearly 52% of Americans feel they were better off four years ago under Trump than they are now because of inflation. A bigger issue is its southern border with Mexico through which millions of Latin Americans have crossed into the US over the past four years, to take up jobs that are readily available due to a tight labour market. Trump blames Biden and Harris for both inflation and open borders.

Before I get into the nitty-gritty of the US elections, here are a few things you need to know: The country’s total population is estimated at around 346 million. Over 163 million are registered voters. In many, though not in all, states, any adult American can register as a voter until the day of the election. They don’t have to wait until the official polling day to vote. Anyone can apply to get a postal vote. You get a mailed ballot that you fill in and then mail back so that it is counted on election day. And anyone can chose to vote early, in person, instead of joining the queue on Nov 5.

Not surprisingly, 60 million Americans have already voted. Voting is not compulsory as it is in Australia and many European countries. In 2020, over 66% of registered American voters cast their vote. That was in the middle of the Covid-19 pandemic. In a close race, like the one we have right now, total voter turnout is likely to be far higher. Bigger turnouts in rural areas will favour Trump and higher turnouts in cities and suburbs will favour Harris. A higher turnout among women will favour Harris while a higher one among younger black or Hispanic men would tend to favour Trump.

The US presidential election is not about who gets the most votes. It is about who wins the electoral college of 538 votes based on the size of each state’s population. California has 54 electoral college votes, Texas 40, Florida 30 and New York 28 while the five smallest states - Wyoming, Alaska, Delaware, Vermont and South Dakota - have three votes each. Whoever wins the state wins all of its electoral college votes. Some states such as Nebraska and Maine split their electoral votes. As America is a federation of states, elections are run not by a national body like federal election commissions but independently by each of the states. 

Of the 50 states, Republicans are dominant in 24 so-called red states while Democrats dominate 19 blue states. The real battle is in seven purple swing states - the Rust Belt states of Michigan, Pennsylvania and Wisconsin as well as the four Sun Belt states of Georgia, North Carolina, Arizona and Nevada. In 2016, Democrat Hillary Clinton won the popular vote by a 2.87 million majority but lost the electoral college to Trump who won just 77,744 more votes in Wisconsin, Michigan and Pennsylvania. In 2020, he almost did an encore, losing by only 10,988 votes in Arizona, 14,152 votes in Georgia, 20,546 votes in Wisconsin and 35,452 votes in Nevada.

Right now, Harris is leading in Wisconsin, which is predominantly white. She is barely leading in Michigan where Arab Muslims, mostly from Syria, Palestine and Lebanon, form a significant bloc. Muslims have in the past voted for Democratic candidates but because of Gaza and President Biden’s support of Israel, they are reluctant to support his vice-president. The Michigan Muslim vote is now split three ways among Harris, Trump and Jill Stein, the Green Party candidate. Trump is ahead in Arizona and Georgia, while the two are equally matched in Nevada and North Carolina. The biggest prize is Pennsylvania. Whoever wins Pennsylvania will probably carry the day. 

While Harris had a slight lead nationally until mid-October, Trump began to regain some momentum two weeks ago. The former president gained between 0.5% and 1% of the vote share nationally, so instead of being 1.5% to 2% behind in early October, he is now about 0.5% to 1% behind Harris. The needle has hardly moved in most of the swing states. Trump has done a littler better in Wisconsin but Harris has picked up support elsewhere

What do the polls say? While the pollsters give the duo an even chance of winning, polls have been more wrong than right in recent election cycles. In 2000, they said Gore would win but Bush beat him. In 2012, the polls said Mitt Romney was faring much better but incumbent Barack Obama eked out a victory. Trump way outperformed the opinion polls in 2016 when he came from behind to defeat Clinton, and again in 2020 when he lost narrowly to Biden. Opinion polls are not an exact science. It is hard for even the best pollster to gauge how 162 million people, in a nation that is split right down the middle, will vote by relying on a sample size of just 800 voters. 

Yet just because Trump outperformed the polls twice doesn’t mean he will do so again. Polling is a big, lucrative business. If pollsters are wrong a third time, nobody will ever trust them again. Over the past four years, pollsters have painstakingly adjusted their methodologies to avoid making similar mistakes a third time. Indeed, it is quite likely that a few pollsters have adjusted their methodologies so much that they have inadvertently tilted towards Trump. If that’s the case, then Harris’ real support is now being underestimated just like Trump’s strength was in 2016.

What will Trump and Harris mean for the US economy and the markets? The former president is offering to lower the US corporate tax rate from 21% to 15%. That will be good for the stock market but only add to the burgeoning budget deficit. He has vowed to impose high tariffs on imported goods, particularly those from China - about 20% - but threatens that he could even raise them to 100%. Trump is offering big incentives for domestic manufacturing as part of a plan for reshoring, to bring manufacturing capacity from Asia and Mexico back to the US. Morgan Stanley estimates that Trump’s tariffs could lead to a 1.4% drag on the US gross domestic product or GDP and add up to 0.9% to headline inflation in the US. 

For her part, Harris plans to raise the corporate tax rate from 21% to 28%, impose a 15% tax on global earnings and raise the tax on stock buybacks from 1% to 4%. She has also vowed to impose unrealised capital gains taxes on ultra-high-net-worth individuals and tax capital gains at death for the wealthy. Harris also wants to improve Medicaid home care for the elderly, exempt tips to service workers from income tax, extend a US$6,000 child tax credit for newborns, and offer US$25,000 downpayment support for first-time homebuyers along with other housing support. She has announced a start-up expense deduction of up to US$50,000 to help entrepreneurs. Harris argues that her plan would raise US$1 trillion to reduce the federal deficit.  

US presidents may be very powerful but to get their fiscal plans through, Harris and Trump will need congressional support. The irony is, whoever wins, there will be a divided government. That means strong checks and balances. However, if Trump returns as president, he could still use his authority on trade to put up tariffs against China. Currently, the Democrats barely control the Senate and the Republicans have a narrow majority in the House of Representatives. On Nov 5, those roles will likely be reversed with the Republicans narrowly regaining control of the Senate and the Democrats taking back the House. In Nebraska, independent candidate and former union leader Dan Osborn is running neck and neck with the Republican incumbent senator. If Osborn wins, he is likely to caucus with the Democrats, giving them 50 seats and a majority if Harris is in the White House.

How will a Harris administration differ from a second Trump administration? Trump has indicated that he will hire billionaire hedge fund manager John Paulson as his Treasury secretary and electric vehicle pioneer and the world’s richest man Elon Musk in an advisory role. If Harris wins, it is likely that JPMorgan CEO Jamie Dimon or one of other top liberal CEOs will join her cabinet. Harris and Trump are both pragmatic people who want America to succeed. One thing America has in abundance are top-rate corporate leaders and great entrepreneurial talent. 

What does all this mean for investors? The US stock market - as measured by the S&P 500 - has had an average annual total return of around 10.5% over the last 96 years. During that time, both Democrats and Republicans have been in the White House. And the country has an independent Federal Reserve, which sets the monetary policy. In a developed, free market economy like the US, it doesn’t matter who is in the White House. While markets are by nature volatile, they trend higher over time, influenced more by economic cycles than election outcomes. Over the past hundred years, politics have not derailed the long-term economic gains that have accrued to listed US companies. It is the compounding of a firm’s intrinsic value over the long run that helps drive stock prices higher, not who is in the White House or which party controls the Senate or the House of Representatives. Whoever wins, as long as America’s free market capitalist system remains intact, long-term investors will come out as winners.

Assif Shameen is a technology and business writer based in North America  

https://www.theedgemarkets.com/node/732570