By Haddon Libby
With Vice President Kamala Harris set to run against former President Donald Trump for President of the United States, people are trying to determine which administration will be better at controlling inflation and benefiting 401k and investment accounts.
For as much as people complain about inflation under President Biden, economists generally believe that a Trump administration would be more inflationary than a Harris administration. Larry Summers, an economic advisor to Presidents Reagan, Clinton and Obama believes a second Trump term will not just create higher inflation but could lead to a bout with hyperinflation.
A Trump administration wants to eliminate the independence of the Federal Reserve. As things currently stand, the Fed can make an unpopular move like higher interest rates. If these decisions were made by a President or Congress, it is likely that political decisions would trump sound economic decisions. Higher inflation would be likely due to lower financial discipline. This is what could lead to hyperinflation.
In contrast, Harris stands for the status quo where the Federal Reserve remains independent. While this approach is less inflationary than Trump’s stance, the deficit spending of the Biden administration could be considered reckless as well.
Trump is running as a Nativist while Harris is a Globalist. A nativist wants strict controls on immigration while a globalist attempts to understand the interconnectivity of all people in today’s world. A simpler analogy would be to say that Trump is for One Country while Harris is for One World.
Trump policies would erect steep tariffs on foreign goods. These tariffs would be matched by tariffs from other countries on US goods. These moves would reduce global trade. History has shown us that less international trade is bad for all who restrict trade. The real issue relates to subsidized trade where a country helps an industry to unfairly sell its goods and services at a well below market price or at a loss. In the weird world of politics, Trump’s policies help small businesses while hurting big business and reducing US competitiveness globally. Lower trade would result in an increase in unemployment and higher prices due to lower domestic competition. Harris is the friendlier choice for global companies and the status quo.
One of the biggest problems dogging Harris is the problem at the US/Mexico border. This will likely be viewed as one of the biggest disappointments of the Biden-Harris administration. Larry Summers believes that Trump’s plan to deport 15 to 20 million people would be inflationary. By deporting large numbers of low-wage workers, employers would have to increase wages which would lead to higher prices aka inflation. In the weird world of politics, this Trump policy would benefit lower wage workers where Harris would likely benefit employers.
Another reason for this concern relates to the extension of Trump’s 2017 tax cuts that are set to expire this year. The Congressional Budget Office projects that the extension of the tax cut will reduce government income by $1.8 trillion. As the tax cut benefitted higher earners more than lower earners, the actual increase in economic activity caused by the cut is estimated at $1.3 trillion. Harris would not renew the tax cut while Trump would. As the tax cut increases money in the system, the tax cut would be inflationary while deepening DCs debt problem. Harris’ approach would be restrictive.
When looking at stocks, Harris would be friendlier toward Mega-Cap stocks like NVIDIA, Apple or Microsoft. Harris is also a better choice for global or international companies, green energy, and technology. Trump would be better for small- or mid-cap companies, some segments in Energy, crypto markets, and healthcare.
In the weird world of politics, some traditional Republican behaviors are now those of the Democrats while some of the populist messages of Democrats of the past are now that of the Republicans.
Haddon Libby is the Founder and Chief Investment Officer of RIA firm, Winslow Drake Investment Management. For more information on our services, pleases visit www.WinslowDrake.com. As a reminder, this article is meant for entertainment purposes. If you want investment advice, call us or talk to an investment advisor.
