The five economic issues in the US election that could impact the UK
With the US election only hours away, the UK will be watching and waiting to see if former president Donald Trump or Vice President Kamala Harris is able to take the win.
But how could the winner of the US election actually affect the UK economy?
1. Tariffs and trade wars
Former president Trump has promised to implement across-the-board trade tariffs of 10 per cent on all US imports.
Analysts have forecast that if his plans are implemented, European exports to the US will drop by around €150bn (£126bn) a year.
With the US being one of the UK’s largest trading partners, any hit to exports could impact companies that rely on selling to US consumers.
In addition, Trump has pledged a 100 per cent tariff on imported vehicles, and cars are a significant export of the UK to the US.
Tariffs on car companies like Jaguar Land Rover could hurt the UK economy through job losses. It will be hard for the car company to find another market to replace the US if tariffs hurt US demand for UK-made cars.
However, Harris isn’t averse to using tariffs either. While not as radical on trade wars as Trump, Democrats have been using them more and more, such as Biden’s taxes on solar cell imports.
2. Interest rates and the US election
The interest rate set by the Federal Reserve has a wide range of implications for the US, and as the dollar is the world’s reserve currency, the central bank’s policies have a knock-on effect on the UK.
If he wins the US election, Trump’s tax plans, which are expected to repeat his $1.9 trillion bill from 2017, could also increase the already significant US deficit, worsening inflation.
“During his first presidency, Donald Trump promised to reduce the US national debt,” noted Santa Zvaigzne-Sproge, head of investment advice at Conotoxia.
“Instead, the US national debt grew by $7.2 trillion in four years while Mr Trump was in the White House – around 30 per cent of the total national debt at the time”.
Analysts have warned that Trump’s policies of higher tariffs and mass deportation of migrant workers could also push inflation higher, forcing the Fed to hold interest rates higher for longer.
Harris is also expected to increase borrowing, though not as much as Trump, as she plans to hike taxes on the wealthy to pay for some of her increased spending plans.
3. The FTSE 100
Though companies listed on the FTSE 100 and FTSE 250 might be based in the UK, they are internationally focused indexes.
With the FTSE 100 deriving 80 per cent of its profits overseas and the FTSE 250 deriving about half, any slowdown in the US economy could have a substantial impact on constituents’ performance.
The UK-listed companies with the most exposure to the US include BAE Systems, which sells defence systems to the US government, and Rolls Royce.
Rolls Royce is the best-performing FTSE 100 this year. However, after reaching a record high on 17 October, the stock has been trading sideways.
“This suggests that investors are being cautious about adding to Rolls Royce longs due to US election risks,” said Kathleen Brooks, research director at XTB.
“The energy sector in the UK is also exposed to global growth trends, if Trump’s tariffs hit global growth, then this sector could also come under further downward pressure in the coming months,” she added.
4. Defence and the US election
Jason Hollands, managing director of Bestinvest, noted that Trump has been vocally anti-Ukraine and has promised to withdraw US financial support for the war effort.
He said this would likely cause aerospace and defence stocks to fall in the event of a Trump win or rally thanks to a Harris win, with many FTSE 100 stocks focusing on the area.
In addition, Trump’s withdrawal of aid from Ukraine would likely leave countries like the UK attempting to fill the gap with greater military aid, potentially boosting UK government spending on foreign aid and defence.
Meanwhile, a Harris victory would likely see defence stocks rising, a sharp change from previous elections where Republicans were typically seen as more profitable for military spending.
5. Green subsidies
Harris would likely continue Biden’s agenda of investing in renewable energy, leading to a continued boom for sustainable companies in the US.
In contrast, a Trump victory in the US election will likely lead to a drop in shares for UK companies focused on renewable energy, “given his commitment to halt all offshore wind projects via executive order on his first day in office,” according to Tancrede Fulop, senior equity analyst at Morningstar.
Orsted could be a particularly hard-hit stock, though Fulop noted that the firm’s two US offshore wind projects currently under construction have already received federal clearance.