Investment Strategy Brief:
A Primary Election Primer

Below is a transcript of this week’s video.

Hi, this is Mike Reynolds with Investment Strategy at Glenmede.

There are probably a lot of adjectives Americans would use to describe their thoughts on the 2024 election, but “important” is probably a universally safe one. With President Biden the presumptive nominee for the Democrats, much attention will be paid to the Republican primary process. It may be too early to draw conclusions about the Republican party’s nominee for the 2024 presential election, but Iowa took the first step yesterday in the parade of primaries and caucuses. Historically, this has usually been the event that sparks the public to really start paying attention to the process that determines who becomes the major party nominees.

This kicks off a multi-month process ahead of the Republican National Convention in mid-July. Until then, there are some key dates to circle on the calendar. The next one is the New Hampshire primary on January 23rd, which has historically been an event that prompts the roster of candidates to whittle down. Another is Super Tuesday on March 5th, when multiple states will hold their primary events at the same time and more than a third of all delegates will be pledged.

The field has already started to narrow down to a few major candidates. Now, an important disclaimer to start – it is not our job to cast judgment on policy. There may be perfectly good or reasonable, non-economic motivations for the policy platforms of the various candidates. It’s up to the voters to decide which candidate best represents their interests. But it is our job to consider, in a non-partisan way, the implications of those policies on the broader economy and investment landscape. In general, there seems to be broad agreement at a high level on economically sensitive issues between the major Republican candidates. That includes more restrained government budgets, a tougher stance on trade (particularly as it relates to China) and a looser regulatory regime. However, there are some differences in the details on how each plans to deliver on those themes.

One of the issues that has broadest agreement between them is the approach to regulation. The regulatory regime has typically been a differentiator between parties, not necessarily within them. Republicans have typically taken a looser approach when it comes to implementing economically significant rules on the business community.

A major issue the next president will have to address will be the rising costs associated with the national debt and deficit. The Congressional Budget Office projects interest costs as a percentage of tax revenue are on path to exceed 20% over a 10-year window. The last time these costs reached these levels, there was a flurry of activity to make budget adjustments to restore fiscal stability, so such action may be in the cards for the next administration. The three major candidates on the Republican side broadly agree on extending the 2017 tax cuts that are set to expire in 2025. Beyond that, Donald Trump has emphasized proposals to limit foreign aid but has not been as willing to discuss entitlement reform as have Nikki Haley and Ron DeSantis.

Perhaps the best example of an economic issue with disparate solutions is trade. Nikki Haley and Ron DeSantis have publicly called for revoking China permanent normal trade relations status. However, Donald Trump has gone a step further, proposing a universal 10% tariff on all imports, reciprocal tariffs and stringent enforcement on customs duties. While the specific details of the proposal are unclear, tariffs in the ballpark of this magnitude would likely increase the cost of imports and act as a roughly 1.5% headwind to economic growth, which could dwarf the impact of the steel/aluminum and China tariffs implemented during his administration. Again, there may be reasonable, non-economic motivations behind proposals such as these. Nevertheless, it’s important that investors begin to think about the implications of these policies for the broad economy and investment landscape so they’re not caught off guard if/when the political winds change.

So to summarize, the Iowa caucuses have initiated the multi-month primary election process, which usually is when the public truly begins to engage. There are both similarities and differences between the various major candidates for the Republican nomination on economically-sensitive issues. The regulatory framework often sets the parties apart, but candidates usually find common ground within parties. Escalating interest costs underscore the necessity for addressing the national debt and deficits, but there are differences among the candidates regarding the specific approaches to tackling the issue. And finally, trade is one of the bigger points of contention – the potential implementation of additional tariffs would like make imports more expensive and pose a challenge to economic growth.

Thanks for listening! And please don’t hesitate to reach out with any questions.