2024 US Elections
In this series, we present our latest analysis on the 2024 US elections, the policy outlook and their broader economic implications.
The US presidential election cycle is officially underway. We are looking at a rematch between former President Trump and President Biden this November, with the policy agendas of each party differing considerably.
The outcome of this election of the 2024 US elections represents the largest lingering uncertainty for the outlook of the US economy. Historically, measures of policy uncertainty tend to be elevated in election years. And elevated policy uncertainty prompts businesses to postpone or mothball plans for capital investment and hiring and weighs on household consumption. We think this pattern will likely repeat in 2024.
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As the native-born population ages, immigration will account for a rising share of population growth, making it crucial to growth in the labor force and the economy’s long-term potential over the next several decades.
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US presidential elections have major implications for the future path of fiscal policy. In previous election years, fiscal policy has historically turned accommodative. We think this will not be the case this year. We still expect the budget shortfall to shrink, excluding the distortions from President Biden’s student loan forgiveness proposal.
With almost all the provisions from the 2017 Tax Cuts and Jobs Act (TCJA), known as the Trump tax cuts, set to expire at the end of 2025, whoever controls the legislative agenda at that point will have an enormous influence over US tax policy. We consider tax policies under three different scenarios: a Republican sweep of Congress and the White House, a Democratic sweep, and a divided government.
Table 1: Tax and spending policies across three different post-election scenarios
We expect Republicans to rush to prevent Trump-era tax cuts from expiring at the end of the year, while Democrats will also feel an urgency to prevent a similarly timed expiration of expanded subsidies for health insurance. In a divided government, a grand bargain that permanently extends key tax priorities of both parties would add at least $1tn to deficits through FY2033, and even more beyond.
Whoever wins the next election, an increase in protectionist measures, or at the very least, a maintenance of the existing ones, seems a near certainty. Globalization’s role in growing inequality and supply-chain disruptions of the post-pandemic era have formed a powerful argument against China, which allows outside access to strategic sectors and technology, and instead favors domestic manufacturing.
Although, Republicans and Democrats appear to think very differently about how this goal should be achieved. We think the Democrats will continue to favor industrial subsidies and regulation, while a Republican administration would likely turn to imposing more tariffs on the rest of the world.
Our analysis suggests that tariffs have been effective at reducing US-China bilateral trade in some sectors, such as electronics, but it also resulted in significant trade diversion to other Asian economies; there is relatively little evidence that the tariff’s imposed by the Trump administration narrowed the US’ trade balance. Overall, this suggests that tariffs might be a useful bilateral geopolitical tool but not that effective at protecting US economic interests.
As illegal border crossings hit a record high at the end of 2023, Biden advocated for a bipartisan border security bill that would expand his authority to put strict new limits on border crossings. This bill was tanked by Republicans as Trump weighed in against it. Meanwhile, Trump pledged that as president he would launch “the largest domestic deportation operation in American history”.
The intensifying debate over border security unfolds against the backdrop of immigration’s pivotal role in shaping the US economy. Immigration has become the key driver of population growth, and this trend will only accelerate. Based on our forecast, immigration will account for close to 100% of population growth by 2050.
Contemplating a higher pace of immigration may seem unrealistic in the current political climate, as a surge of immigrants is straining government resources in many areas. However, the economic consequences of the demographic shift in the US—characterised by lower births rates, slower net migration and higher death rates—are significant and will require policymakers to eventually adopt a balanced and forward-thinking approach to immigration policy.
Vice President Kamala Harris and former President Donald Trump have very different records on climate change and environmental policy. Most notably, Trump withdrew the US from the Paris Agreement in 2017, an international treaty on climate change. Biden reversed that decision in 2021.
The impact of climate change on the economy cannot be overlooked. Besides damages brought by changing weather patterns and more frequent natural disasters, there are significant opportunities in fostering a green economy. This includes the development of renewable energy sources and electric vehicles.
Oxford Economics is poised to release a report assessing the implications of climate change on the US economy. To receive this report directly in your inbox upon its release, you may subscribe to our US election newsletter.
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