The US election will prove a major event for Emerging Markets, impacting their future economic and geopolitical paths, from changes to global trade, impact on migration to the US, and the administration’s approach to international relations.
Presidential election polling continues to point to an extremely close race and has indeed narrowed further over the last week. Election models now give the edge to Donald Trump, and he now ties the polls in the crucial swing state of Pennsylvania. That said, since Harris retains a marginal lead across the remaining swing states, abrdn Global Macro Research retains its 50/50 election call.
Giving us his insight into what this all means for the markets, Robert Gilhooly, Senior Emerging Markets Economist at abrdn, said:
“The US election results will have major implications for the emerging market (EM) outlook, affecting both the future economic backdrop and geopolitical landscape. A Harris presidency with a divided Congress (40% probability) would present the most limited shock to both the US and EMs. That leaves a 60% probability across four scenarios, which involve a wide range of larger policy shocks. There are important differences between them, but one common feature is that they exert more inflationary pressure and imply a higher federal funds rate, which could reduce the likelihood of EM central bank cuts.
A ‘market friendly’ Trump presidency, for example, would be good for EMs: the Fed may cut by less, but a stronger global economy and ‘risk on’ market sentiment would mitigate the impact of USD pressure. By contrast, a second trade war would be much harder to navigate, creating a wide range of winners and losers across EMs. This is a particular risk for China but could ultimately benefit countries that are able to capture the reshoring of manufacturing.
A tougher US stance on migration and deportations would be felt most in Latin America, complicating the 2026 USMCA review. But, ultimately, the more the US decouples from China, the more it will need Mexico.
A wider range of foreign policy aims and outcomes is possible under a second Trump presidency. Resolutions to the Ukraine-Russia and Middle East conflicts remain unlikely in the near term, but a more isolationist and transactional approach could recast relations with both friends and foes.”
| Description | Probability | Policies and Implications | |
| Constrained Harris | Democrats retain the White House but do not benefit from a unified Congress. Broad policy continuity likely. | 40% | Broad domestic and foreign policy continuity from the Biden administration. Policy generates a modest widening in the fiscal deficit as the Tax Cuts and Jobs Act (TCJA) is extended for those on <$400k on a temporary basis, child and R&D tax credits agreed, but Inflation Reduction Act (IRA) funding is pared back. Overall, this is not large enough to materially shift the dial on growth or inflation, driving a steady monetary easing alongside a ‘soft landing’. Biden’s ‘small yard, high fence’ approach to national security and export restrictions to China continued and slowly expanded, while US allies face more pressure to follow China policy more closely. Policy changes slow migration flows. |
| Blue Wave | Democrats retain the White House with a unified Congress. | 10% | Extensions of TCJA, child and R&D tax credits are combined with protection of IRA funding and first-time homebuyer tax credit that drives a widening in the deficit. This boosts global trade, but also pushes inflation pressures modestly higher, leading to a slightly softer pace of easing from the Fed and EM central banks. |
| Trump trade war 2.0 | Trump wins the election, but a split Congress curtails tax cuts and legislation. Focus turns to fulfilling campaign pledges on trade and immigration through executive orders. | 25% | Modest upward pressure on government spending via TCJA extension, but trade policy moves to the fore. Trump uses executive orders to introduce a 60% tariff on the Chinese goods he targeted in his first term, resulting in an effective average bilateral tariff on Chinese goods of 40%. Trade partners running large surpluses are also in the firing line (e.g. Mexico, Vietnam and the EU). USMCA renegotiation is threatened to stem the flow of migrants, but ultimately the review is passed. Reshoring away from China accelerates, benefiting some EMs. Tariffs and deglobalisation push up on US inflation, markedly slowing the pace of US cuts and impacting negatively on risk sentiment. |
| Trump delivers for markets | Trump’s agenda largely follows the pattern set in the first half of his first presidential term, with efforts focussed on deregulation and tax cuts | 15% | Markets react positively to tax cuts and deregulation. Stronger corporate profits and a ‘risk on’ environment offset the impact of higher discount rates and a moderate pace of Fed rate cuts. Tariffs are threatened, but actions against China are less than feared, while other key trading partners (e.g. Mexico) are spared after giving some concessions. Relations with China are tense, but the US maintains its ‘One China’ and ‘strategic ambiguity’ policies. Trump seeks to pressure Ukraine and Russia into agreeing a ceasefire. EMs benefit from a weaker USD and better global growth, while slowly reaping benefits of reshoring. |
| Full fat Trump | Trump takes advantage of a unified Republican Congress to enact his entire political platform – across trade, immigration, fiscal and regulatory policy. | 10% | US economy is hit by inflationary shock as the US fiscal deficit rises and tariffs raise import prices. Trump follows through with tariff threats to try to reduce US trade deficits, while prioritising onshoring back to the US. Efforts to decouple from China are amplified by a focus on ‘rules of origin’, reducing the ability of firms to reshore production into the rest of APAC. Alongside deglobalisation pressures, US potential growth is damaged by migrant deportations and increased border security. USMCA becomes an annual review process. Relations with allies become more transactional. |
