US elections analysis
US elections analysis
USA - Change everything so that nothing changes
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Today, we're launching a new series of posts at LWS Financial Research, focused on geopolitics from a market impact perspective and led by Aleix Amorós, our latest addition (you may already be familiar with his work from our investment idea context pieces, such as on Gulf Keystone Petroleum or Israel Chemicals, and our weekly summaries).
His knowledge and ability to convey it will certainly add substantial value to our publication and our edge in the markets. To kick off this section, there's no better place to start than by focusing on the upcoming U.S. elections—a crucial event on the immediate horizon, where knowing what to expect and how to position ourselves is essential. Without further ado, here’s his piece.
Synopsis
On November 5th, over 250 million eligible American voters across all fifty states will head to the polls to elect the nation’s 47th president, continuing the world’s longest-running uninterrupted democracy.
Facing off are former president and Republican candidate Donald J. Trump and current Vice President Kamala D. Harris, the Democratic frontrunner. Both contenders have a real shot at victory as they reach the final stretch of a closely contested race for the Oval Office.
Beyond the presidential election, that day will also bring a substantial renewal of legislative power within Congress. All 435 seats in the House of Representatives—the lower chamber—are up for election, along with one-third of the Senate’s 100 seats in the upper chamber. Additionally, elections will be held for 11 new state governors and 2 territorial governors in American Samoa and Puerto Rico.
Polarization is undeniably at the forefront, with society more divided than ever. This is evidenced by two attempted assassinations targeting the Republican candidate, further souring the pre-election atmosphere. Victory for both contenders largely hinges on seven swing states, with the Rust Belt playing a central role.
The economy is the campaign's main pillar, with inflation taking center stage after a term shaped first by the pandemic and later by the Ukraine and Middle East conflicts. The global superpower is caught between two models: an open, alliance-based approach rooted in free trade agreements, and an isolationist stance aiming to reverse globalization trends.
Unavoidably, these elections will resonate in numerous other areas, including foreign policy and climate action, given the power and influence the United States still holds on the global stage.
A historic showdown
If U.S. elections were a sporting event, they would undoubtedly compete head-to-head with the Olympics for audience supremacy. On November 5th, hundreds of millions worldwide will closely follow what could be the closest contest since the Al Gore vs. George Bush race 24 years ago. Back then, the Republican candidate clinched victory by securing Florida in a nail-biting recount that ultimately required a Supreme Court ruling. Today, Florida is practically a Republican stronghold, with attention shifting to a handful of seven states where polling projections suggest a virtual tie, with razor-thin margins favoring one side or the other.
The so-called Rust Belt in the country's northeast is set to play an especially critical role, with Michigan, Pennsylvania, and Wisconsin among the most sought-after battlegrounds. This region exemplifies, like no other, the impact of the nation’s deindustrialization and its fallout—from population loss to the decline of major cities like Detroit. China’s accession to the World Trade Organization in late 2001 marked a turning point, prompting the mass offshoring of factories to the Asian giant to cut costs. This shift led to the gradual abandonment of historic industries like automobiles, steel, and coal mining as they struggled to remain competitive in the domestic market.
Despite the ravages of time, the region has managed to reinvent itself, with Pennsylvania emerging as a national leader in natural gas extraction thanks to the Marcellus Shale basin, and Michigan becoming the second state to attract the most private investment commitments under the Inflation Reduction Act (IRA)—Joe Biden’s flagship initiative—which has directed over $25 billion toward the region, focusing on battery assembly and electric vehicle manufacturing. Indeed, the nostalgia for the industrial greatness that once defined these states remains strong in the memories of many citizens, something Republican candidate Donald Trump has repeatedly leveraged as an ideological tool to critique globalization and its harmful effects on local jobs.
Ultimately, the elections boil down to two opposing models of governance. One is based on alliances and free trade agreements, which have made the United States the economic powerhouse it is today, despite growing internal inequalities and the decline in industrial competitiveness. The other is isolationist, aiming to revive the productive sector that once defined the country’s identity, albeit at the cost of closing itself off from the world at a time of growing social unrest that requires understanding more than ever.
Deciphering Congress
The executive arm of U.S. legislative power will also be renewed on November 5. On one hand, all 435 seats in the House of Representatives (the lower chamber) are up for election, and on the other, one-third of the 100 seats in the Senate (the upper chamber). The composition of Congress is as important, if not more so, than the presidential outcome, given that the powers emanating from the Oval Office are limited; in this sense, having institutional approval is essential for advancing delicate issues such as the debt ceiling, which has long been a source of friction among lawmakers due to the country’s rising debt.
While recent presidents have bypassed some congressional blockades through executive orders—Donald Trump signed more orders than any president since Jimmy Carter’s term (1977–1981)—it’s not a tool to be used lightly, as it is subject to strict judicial reviews and can be overturned if it lacks legal or constitutional backing.
The House of Representatives is under Republican control, having secured a parliamentary majority in the 2022 midterm elections by winning 222 seats. Mike Johnson is the party’s spokesperson. Currently, there are three vacancies—two Republican and one Democratic. Out of the 435 seats up for grabs, the balance of power will be determined by just 43 of them, or 10% of the total.
The Senate, meanwhile, remains in Democratic hands, with 47 seats plus the support of 4 like-minded independents to maintain a majority in the upper chamber. Chuck Schumer is the party’s spokesperson. Of the 34 seats in contention, 23 are held by Democrats (19) and independents (4). The remaining 11 belong to Republicans. In this case, the balance of power is likely to hinge on just three of these seats, specifically in Michigan, Ohio, and Wisconsin.
A testament to the influence wielded by the U.S. Congress, the 118th Congress, which began on January 3, 2023, and will end on January 5, 2025, has been labeled the least productive since the Great Depression, comparable to the 72nd Congress. Bipartisan deadlock has resulted in barely a hundred laws being drafted and approved. If this trend continues into the next presidency, governance will be particularly challenging regardless of the victor, limiting their ability to implement changes and reforms.
Beyond Congress, up to 11 gubernatorial positions will be up for election—eight Republican and three Democratic. Among these is North Carolina, one of seven states poised to shift the balance of power. Additionally, on election day, over 100 referendum initiatives will be considered across the 26 states that allow them, shaping state policy on issues such as access to reproductive healthcare, marijuana legalization, taxation, fiscal policy, and voting rights.
The economy, the pivotal point
On October 17, The Economist published an extensive report titled America’s economy is bigger and better than ever. Will politics bring it back to Earth? According to the authors, the deteriorating political landscape has yet to show a visible impact on the economy; however, as internal division grows—the 2023 Elden Trust Barometer ranks the United States as the third most polarized country globally, behind only Argentina and Colombia—the likelihood of erratic policy decisions also rises.
The election campaign serves as a good indicator of what may lie ahead. In recent weeks, both Kamala Harris and Donald Trump have roused their bases with increasingly damaging promises, jeopardizing a growth trajectory that, despite its ups and downs, has sustained itself over time and widened the gap with many competitors. Over the past three and a half decades, the U.S. GDP has grown from representing 40% of the G7 total to half, and per capita wealth is now 60% higher than Japan's, twice as much as in 1990. Even the poorest state, Mississippi, has an average income above that of Britons, Canadians, or Germans. Similarly, for the twelfth consecutive year, the United States tops the list as the leading recipient of foreign direct investment—especially following the IRA's approval—and consumer spending remains robust.
Even with these credentials, polling consensus and demographic studies indicate that a majority of citizens distrust the current Democratic administration's ability to manage the economy. The cost of living, particularly in the years following the pandemic, has risen far above wages, resulting in a substantial decline in purchasing power. Food-related inflation has increased by 22% since March 2021; egg prices have soared by 88%, and gasoline has risen by 16%, despite the U.S. solidifying its status as the world’s largest oil producer. Similarly, housing costs have nearly doubled over the past two decades, with the price-to-wage ratio reaching its highest level on record, surpassing even pre-2008 housing bubble levels. In response to this situation, it’s surprising that only the Democratic candidate has proposed ad hoc measures to combat price escalation, specifically in food, though their effectiveness remains uncertain.
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