Harris vs. Trump: What the US election result will mean for Australia

The result of next month’s US election between Donald Trump and Kamala Harris will have significant ramifications for Australia. Picture: AFP

With less than a month to go until the US election, there is an increasing focus on the policy implications for Australia of either presidential candidate.

The Trump presidency in 2016 saw pressure in Australia for a reduction in the corporate tax rate and the launching of a bitter trade war between the US and China.

A more belligerent tone in the White House against Beijing also spilt over into heightened rhetoric against China from political leaders in Australia, despite the fact that Australia benefits from a significant trade surplus with China while the US has a significant trade deficit with the country.

The Biden presidency of 2020 saw an increasing emphasis on climate change policies, with the US returning to the Paris Agreement fold which commits to net-zero carbon emissions by 2050, and the introduction of the multibillion-dollar Inflation Reduction Act which has inspired the Albanese government’s Future Made in Australia policies.

A new paper out on Wednesday by AMP chief economist Shane Oliver argues that the US election has “significant potential to impact markets”.

“A Harris victory could mean more of the same, but a Donald Trump ­victory could lead to uncertainty, particularly around trade,” he warns.

Oliver argues that the strength of the US economy, falling inflation, lower interest rates and a strong sharemarket auger well for a Harris win – a vote for a continuation of a Democrat administration with the presidency transferring smoothly from Joe Biden to Kamala Harris.

While Harris is doing a lot better than Biden, the US election could come down to a handful of voters in seven or fewer swinging states, making it too hard to call.

While predicting the outcome from Australia is merely speculation, it is inevitable that the policies of the new president will flow on to influence the debate and ­policy in Australia.

As Oliver notes, Trump would make the personal tax cuts he introduced in 2017, which took the top marginal tax rate down to 37 per cent, and are due to expire next year, permanent.

He would also cut the corporate tax rate to 20 per cent, with 15 per cent for domestic companies involved in manufacturing.

Harris would extend the 2017 tax cuts for people earning less than $US400,000. She would raise the corporate tax rate to 28 per cent, and increase the capital gains tax rate to 28 per cent for people earning more than $US1m.

Harris is also backing Biden’s proposal in his latest budget, including a tax on the unrealised gains of people with net assets above $US100m, a move known as the “billionaires’ tax”.

Interestingly, the proposal comes as the Albanese government has been proposing a tax on unrealised gains of superannuation funds which is set to kick in at a much lower threshold of $3m.

A Harris election would involve a higher-taxing regime across the board, including on income, capital gains and corporate taxes. This would help provide some political cover for a re-elected Albanese government, or an Albanese-Green coalition government, to roll out new taxes on areas including property, dividends, capital gains and super.

Oliver warns that Australia, as an open trading nation, would be vulnerable to a new trade war if Trump wins in November.

Back in 2016, Australia was about to be hit with tariffs on its steel and aluminium exports to the US which were headed off by some swift diplomacy, reminding Trump that Australia was a long standing US ally and not an enemy.

Harris would continue the policies of the Biden regime which have kept Trump’s first term tariffs. Trump is now threatening a much bigger increase in protectionism with a tariff of 10-20 per cent on all imports and a 50-60 per cent tariff on imports from China.

Oliver quotes an OECD study that estimated Australia could suffer a 1.2 per cent reduction in its GDP if there was a global trade war between major countries, with resources shares most at risk.

Much would depend on how hard Trump pursued his trade wars. Oliver notes the fact Trump cannot have a third term of office if he were elected in November could lead to considerable uncertainty as he’ll be less constrained by political considerations.

This could see him take a more aggressive stance on a range of issues including the imposition of tariffs and trade wars and in attacking perceived enemies.

Harris has indicated that she would impose price controls on essential items including grocery items (with anger over grocery prices currently resonating in Australia) and would seek to bring in price caps on essential pharmaceuticals.

Trump has also threatened to sack US Federal Reserve Board chair Jerome Powell, replacing him with a more compliant US Fed chair and reducing the independence of the US central bank. On the face of it this would mean lower US interest rates, which could also flow onto Australia.

A Trump administration is also expected to see a reduction in regulation on the energy and financial sector – another shift that could flow onto Australia.

In theory, Harris would produce a much more economically responsible deficit (thanks to her higher tax regime) than Trump with his lower tax regime.

The US deficit, which is already huge at 6 per cent of GDP, is estimated to increase by another 1-2 per cent of GDP under a Harris presidency but blow out by another 2-3 per cent under Trump.

In the meantime, the approach of the US election and the potential policy changes to be announced in the early months of a new administration next year could lead to more volatility in the US sharemarket as investors react to each piece of news.

Oliver points out that historically the US sharemarket has done better under a Democrat president than a Republican president and best under a Democrat president with Republican control of the House, the Senate or both.

He says a Trump presidency would see higher US bond yields with slightly higher inflation, higher budget deficits and more uncertainty around US policies.

He also warns that a narrow Trump loss could see him seek to challenge the outcome, leading to even political uncertainty and more market volatility.

Fund manager Alex Pollak, founder of Loftus Peak, argues that a Harris presidency would see more of business as usual from the White House and in markets, and a Trump victory would see more market volatility and uncertainty.

He points out that while the uncertainty and volatility of the 2016 Trump regime eventually worked out positively for US markets, he believes there is no such certainty of a similar positive result this time around if he were re-elected for second term.

While there has been much focus to date on the pyrotechnics of the dramatic US election campaign, with X and TikTok both running hot, the second week of November will need to see some detailed analysis locally of what the new US president’s policies mean for Australia.