What’s the link between Taylor Swift and the outcome of the 2020 US presidential election?
The answer: President Joe Biden clinched victory four years ago with a margin of 42,844 votes – less than half the crowd at one of Swift’s Wembley Stadium Eras Tour shows. In other words, the election hinged on just 0.018% of voting-age citizens in the US, with the ballots of a relatively small group of people living in a few key swing states determining the result.
This year’s election is set to be a high-stakes rematch between Biden and former US President Donald Trump, with global ramifications on geopolitics, security, trade, inflation, democracy, and the value of currencies. Once again, the outcome is too close to call. Four months from election day, the polls are in a dead heat. But betting markets show a steady climb in the probability of a Trump win. Already, institutions ranging from wealth managers to multinational bodies are discussing the need to “Trump-proof” in case the Republican candidate emerges victorious.
Given the uncertainty around the outcome, preparing for a particular election result may seem difficult and, to some, pointless. Yet, this time around, both candidates’ previous terms in office can provide clues about the future to help firms with pointers to mitigate political risk. Firms should bolster the resilience of their organizations by scrutinizing which parts of their business would be most affected by either outcome and considering the market and non-market tools available to solve those challenges.
“During Trump's administration, the S&P 500 achieved a 13.7% annualized return and household wealth increased by 16% in his first three years.”
The performance of the economy under Presidents Trump and Biden presents a mixed picture, influenced by various factors. During Trump’s administration, the S&P 500 achieved a 13.7% annualized return and household wealth increased by 16% in his first three years.
In contrast, Biden’s tenure has seen significant volatility in the S&P 500, although the index has recently reached an all-time high. Adjusted for inflation, household wealth under Biden grew by only 0.7% in his first three years but the economy is now improving.
Unemployment has fallen sharply under Biden from the COVID-linked layoff spike in 2020. An analysis by Moody’s suggests Biden’s policies would continue to reduce inflation, whereas a Trump victory with a Republican house might reverse the progress made so far.
Participants we surveyed during a recent program reported benefiting from Biden’s stable policy environment and initiatives like the Inflation Reduction Act (IRA) while under Trump, they experienced fewer regulations and a faster-growing economy.
“Biden and Trump are miles apart on some issues, while they are aligned on others”
Looking at both candidates’ manifestos in five key policy domains – clean energy, business regulation and industrial policy, foreign trade and investment, tax and fiscal policy, and alliances and partnerships – Biden and Trump are miles apart on some issues, while they are aligned on others, such as wanting to bring factory jobs to the US, imposing further restrictions on the transfer of sensitive US technology to China and spurning globalization (although in the latter case to different degrees).
Here is an overview of some key areas of policy divergence between the two candidates:
Policy area | Biden | Trump |
Clean energy | Seeking to build US clean tech leadership by funneling $400bn towards clean energy through the Inflation Reduction Act. | Described electric vehicles as “job killers” and rails against wind farms. |
Business regulation and industrial policy | Would continue his “big is bad” antitrust crusade. Would continue incentives for clean energy investments. | Wants to dramatically reduce regulations and gut enforcement agencies. Would invest in infrastructure. |
Foreign trade and investment | Unlikely to strike any new traditional trade deals, foreign investment and technology sales and transfer will be subject to more restrictions. | Pledges to impose 60% higher import tariffs on Chinese goods and 10% on goods from elsewhere. Potential renegotiation of the United States Mexico Canada Agreement (USMCA) could threaten sourcing from Mexico. |
Tax and fiscal policy | Would raise corporate profit/income tax from 21% to 28%, tax foreign profits of firms more heavily, increase top rate of tax on highest earners (to 39.6%), and cut allowances that shield capital gains from tax. | Would seek to renew the tax cuts that were enacted during his first term and are due to lapse. |
Alliances and partnerships | Committed to NATO, the G7, and multilateral alliances in Asia – but less so to the UN and WTO that constrain the US. | His America First policy harks back to the US isolationist streak. Would question the commitment to NATO and whether the US should support nations who haven’t spent enough on their defense. |
Beyond the individual policies laid out by each candidate, let’s not forget that the power that US presidents yield is enormous but limited to certain areas, like foreign policy and where they can impose executive orders. Many policy changes will require collaboration and could easily be derailed by deadlock in Congress. In 2020 Congress enacted only 28 bills, down from over 200 in 2000. The filibuster procedure, which means that any party must have 60 votes in the Senate to end debate and proceed to a decision, has proven a major roadblock for policy change. Equally, the styles of each president could influence the extent to which they can enact policy.
Once you’ve established which areas would be negatively impacted by certain policy issues, you can consider the different risk mitigation strategies available to you to neutralize the negative and bolster your resilience.
Regardless of whether your business operates in the US, executives should trace out how the election of either Biden or Trump impacts its different aspects, including customers (and therefore revenues), suppliers (and therefore costs), talent, capital, production, operations, distribution, data acquisition and management, R&D, tech acquisition, and innovation.
Once you’ve established which areas would be negatively impacted by certain policy issues, you can consider the different risk mitigation strategies available to you to neutralize the negative impact and bolster your resilience. Every business has market and non-market strategies available to it. Here are five conventional political risk management strategies:
Firms can diversify their operations across geography, sectors, and business units, for example, by moving manufacturing to Vietnam or India if US relations with China become more toxic, or by prioritizing a different business line.
A company’s foreignness can be a disadvantage or even a liability in some markets. Forming a joint venture can help mitigate some of the implications. Take the example of Indian module manufacturer Vikram Solar, which is teaming up with a US private equity firm Phalanx Impact Partners and family office Das & Co to develop a vertically integrated solar manufacturing operation in the US.
Firms can lobby governments directly or through industry associations or their own home governments to affect policy change. For example, solar groups are lobbying the Biden administration to bolster support for domestic manufacturing to try to discourage panel makers from seeking additional tariffs on imports.
One way to protect your organization from policy changes is to put clauses into your contracts that allow for compensation if policy changes in a way that affects your business adversely, for example an end to subsidies for clean technology.
Setting up manufacturing facilities in another country where you hire employees and pay taxes locally can help insulate you from tariffs. Japanese carmaker Toyota employs almost 50,000 people directly in the US and has invested $39bn into its US operations.
Beyond these conventional strategies, business leaders can also use nonmarket tools that focus on shaping government policy – advocacy, lobbying, and the cultivation of political relationships – to mitigate market challenges. Unlike the market environment, where firms interact with customers, suppliers, investors, and competitors, the nonmarket environment includes stakeholders like governments, NGOs, media, regulators, activists, communities, and citizens who can influence the market conditions in which a firm operates. For example, policy changes like tariffs, export restrictions, tax increases, permit allocations, or regulations can impact a firm’s ability to sell products, source materials, and interact with customers.
When considering a market challenge your business may face from the US election, consider whether there are also non-market responses available. Here are a few examples.
A company that makes wind turbines has benefitted from the tens of billions of dollars in green subsidies for clean energy under Biden. If Trump were to get elected, this spending might come to a halt – particularly given Trump has been outspoken in his dislike of wind turbines and continues to flirt with climate change denialism. A radical policy change could have a detrimental impact on the firm’s revenues. How could it respond?
Market response: The company also makes other clean-energy products that are less dependent on subsidies. In the case of an adverse policy change, it could ramp up this business sector to make the most of changing demand and stem any potential revenue loss in its wind business.
Nonmarket response: While Trump may be opposed to wind turbines at a federal level, permits are often granted at a state level. One option available would be for the company to lobby individual states to allow the construction of offshore windfarms.
An intensifying trade war with China leads the US to impose tariffs on a wide range of goods, including parts and products sold by a leading toy company in America. The tariff hike represents a major threat to the firm’s profit margins. What options are available?
Market response: The company could diversify its suppliers to source from a different market that is not subject to tariffs.
Nonmarket response: The company could lobby the government for an exemption on certain products. Plenty of exemptions were granted during Trump’s trade war with China.
The 2024 US presidential election represents a fork in the road that warrants the attention of all leaders. While the outcome could compromise the operations and profitability of your business, it helps to remember the following three things:
Remember the Serenity Prayer – accept what you cannot change, have the courage to change the things you can, and the wisdom to know the difference. While the market and policy environment may change, bringing with it new regulations and political shifts, your organization’s core business values and mission should stay the same.
Reflect on former US President Dwight D Eisenhower’s words: “Plans are worthless, but planning is everything.” Ahead of the election, use this time to strategize and adapt.
Many US politicians attribute to British statesman Winston Churchill remarks along the following lines: “You can always count on the Americans to do the right thing after they’ve tried everything else.” The message? For all the hype surrounding the presidential candidates, America’s vibrant democracy contains plenty of guardrails and the capacity to correct.
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