JPM: Economic policy implications of the election

The 2024 U.S. presidential election is approaching and the potential macroeconomic and policy impacts of the outcome are becoming a focal point for investors and analysts.

According to a recent note from JPMorgan economists, key policy areas such as immigration, trade, fiscal policy, and industrial policy could see major changes depending on whether President Biden secures a second term or former President Trump returns to office.

One of the starkest contrasts between the candidates lies in immigration policy. President Biden, despite tightening border entry rules, has maintained high immigration numbers. This approach has contributed to economic benefits such as increased labor supply and consumer demand, helping to sustain job growth and keep housing vacancy rates low despite solid housing completions.

In contrast, Trump has vowed to shut the southwest border and initiate large-scale deportations of unauthorized immigrants. Such actions could reverse the economic benefits of higher immigration, potentially reducing labor supply and consumer demand, which might lead to higher unemployment rates and increased housing vacancies, JPMorgan economists said in a note.

Legal experts are divided on whether large-scale deportations would be upheld by the courts, but the president has broad authority to limit immigration.

Trade policy is another key area of divergence. While the Biden administration has kept many of Trump’s tariffs on Chinese imports, Trump has proposed even more aggressive measures, including a 60% tariff on all Chinese imports and a 10% universal tariff on all imports.

JPMorgan analysts note that the economic growth impact of tariffs might be smaller than anticipated, “however, announcements around the Trump 1.0 tariffs had large and adverse effects on the stock market,” economists noted.

“This disconnect may reflect that trade models don’t capture intangibles like policy uncertainty. In any case, significant uncertainty attends to estimates of the impact on growth,” they added.

Meanwhile, fiscal policy under Biden would likely involve extending key provisions of the 2017 Tax Cut and Jobs Act (TCJA) for those making under $400,000, while reverting to higher rates for higher incomes, economists pointed out.

Biden also plans to raise the corporate tax rate from 21% to 28%, increase the GILTI tax rate to 21%, and implement other revenue-raising measures. His plan aims to generate around $150 billion per year, roughly 0.5% of GDP, after accounting for revenue lost from an expanded child tax credit and other tax credits.

In contrast, Trump’s fiscal plans remain less specific but suggest extending all TCJA provisions and possibly introducing a comprehensive tax cut, including for middle, upper, and lower classes, as well as businesses.

“If Trump needed to compromise with a Democratic-controlled House, it’s possible that the corporate tax rate could move higher,” JPMorgan wrote. “And as alluded to earlier, any revenue raised from higher tariffs would be seen by a Trump White House as funding the TCJA extension or expansion.”

In terms of industrial policy, particularly related to the green transition, it could face risks under a Trump administration, economists said.

While the Inflation Reduction Act (IRA) and the CHIPS Act have stimulated nearly half a trillion dollars in announced investments in semiconductor and clean tech manufacturing facilities, opposition to these green initiatives could pose a risk to this spending.

However, JPMorgan analysts believe this risk is manageable for two main reasons.

First, repealing the IRA entirely would require complete Republican control, which JPMorgan believes is unlikely. Without this, Trump’s administration could only slow DOE lending and reduce some subsidies, while most IRA support would persist. Second, much of the IRA and CHIPS Act spending benefits Republican-leaning areas, potentially softening opposition even if Republicans gain full control.

In antitrust policy, Biden’s administration has been proactive, targeting major tech companies like Google (NASDAQ:) and Meta (NASDAQ:).

On the other hand, a second Trump administration might adopt a more lenient approach to antitrust enforcement, although some conservatives have shown increased support for strong competition policies.

Despite aggressive enforcement under Biden, the labor share of income remains near all-time lows, “indicating that these industrial trends won’t turn on a dime with a change in the White House,” JPMorgan’s economists said.