United Kingdom
The US presidential election in November is a key political event for 2024. If President Biden is re-elected then we should see a continuance of current policies, but a Trump victory would likely bring more dramatic change. A second Trump term would bring the future of key international organisations into focus, and the US would almost certainly slow its efforts to curb carbon emissions, although these are likely to be insufficient anyway. Another major impact will be on global trade, with former President Trump promising a huge increase in trade tariffs – we will cover this important topic in a separate paper. Whoever wins, we are likely to see political divisions deepen further, with confidence in the democratic process continuing to weaken.
We take a deeper look at how the next presidential term could impact the three most prominent geopolitical flashpoints. All of these have potentially significant implications for fiscal spending and inflation:
- The war in Ukraine: The conflict in Ukraine has ground to a stalemate, with no significant progress by either side over the last year. Former President Trump has stated that he would end the war within 24 hours, and a frozen conflict may suit Russia, providing time to consolidate. If US aid were to dry up over the medium term, we believe other NATO members would be able to provide sufficient support to sustain the conflict, as a Russian victory would be more costly in the long-term.
- Middle East conflict: Israel is battling with Hamas within Gaza, but the plight of Palestinian civilians is eroding international perceptions and support. The regional backdrop is complex, with Iran pursuing a long-term strategy to increase its regional influence. We can see a variety of possible scenarios in the Middle East. Optimistically, Trump could view a grand peace deal as a worthy legacy and be prepared to go all out to achieve it. But there are other more pessimistic scenarios in which Iran becomes more directly involved in the regional conflict.
- The battle for dominance with China: A new cold war is building between China and the US. Tensions in the South China Sea are growing, with Taiwan a potential flashpoint given Chinese calls for reunification. We believe a Trump presidency would make an escalation less likely, but Chinese/US relations are likely to deteriorate whoever wins the US election.
Ultimately, we believe a Trump victory would bring significant uncertainty – but that very uncertainty could well reduce the risk of escalation in these key conflicts, as the US response would no longer be as predictable. Iran will likely continue to make use of regional proxies to maintain tensions in the Middle East. This should keep upward pressure on both oil prices and shipping costs. A more serious direct conflict with Iran would run the risk of a significant oil-price shock.
We believe this is one of several factors that will mean inflation remains sticky in the years ahead. This would restrain central bank easing and be a headwind for bond and equity markets. We believe investors need to plan for greater volatility ahead.
