Whether voters choose former President Donald Trump or Vice President Kamala Harris, the economy will change in radical ways, but stocks will thrive.
Bain & Co. estimates that spending on Artificial Intelligence equipment and services will jump to $1 trillion by 2027. That’s 3% of projected GDP, 23% of non-residential investment in buildings, equipment and software.
According to economists at J.P. Morgan and Goldman Sachs those investments should raise labor productivity in the range of one percentage point a year.
AI and the decarbonization of energy systems, transportation and buildings will create and destroy jobs and usher in new opportunities to compete on the global stage.
Americans are apprehensive, but other transformational technologies like those associated with the mechanization of agriculture and industrial revolution, advent of electricity and the internet boosted growth and employment—new occupations emerged to absorb released labor.
American entrepreneurism and business leadership begetting a succession of trillion-dollar companies like Microsoft, Alphabet, Meta, Nvidia and perhaps soon OpenAI bears testimony that capitalism and free markets offer the beacon for a brighter future—a Second American Century.
Yet, ordinary folks caught in the clutches of disruption—displaced from jobs or raised in communities far from the centers of progress in rusting factory towns of the Middle West and more remote areas of the South, West and Northeast—want stability and a share of the prosperity.
We see these anxieties play out as the candidates campaign in Michigan.
No surprise, Ms. Harris if elected wants to further support programs that boost new industries like AI, electric vehicles and green energy and social programs to level up the struggling working and middle classes. An embrace of capitalism with “free and fair markets.”
In a nutshell, she wants to double down on the President Biden’s industrial policies by adding another $100 billion in investments in AI, semiconductors, solar, hydro, batteries and materials critical to our security—while also lifting established industrial communities that have been disrupted and underrepresented groups. And to offer more help to working families with greater federal support for childcare, enlarged child tax credits, expanded apprenticeship programs for the non-college bound and so forth.
She’d pay for it by letting the benefits of the Tax Cut and Jobs Act of 2017 lapse for those earning more than $400,000, imposing a minimum corporate tax of 15% to align the U.S. regime with an international treaty mandating a floor under business taxes and raising the nominal corporate tax rate from 21% to 28%.
Donald Trump’s talks about a similar path—lowering the corporate tax rate to 20% and 15% for domestic manufacturing—that would make creating jobs in America more attractive. And pay for this approach with tariffs—10% to 20% across the board, a lot higher for firms like John Deere who might flee to Mexico and 60 percent of Chinese goods. And an array of personal tax breaks such as for overtime, tips and social security payments.
The difference is a Harris Administration, like its predecessor, would orchestrate investments from Washington—giving out goodies to firms she deems most responsible, progressive and pro-union. Basically, raise taxes on businesses and the wealthy generally and then lower the burden for those who comply with her industrial and social policy visions.
Mr. Trump would rely more on markets and the pace of technological progress define the shifts in resources and employment.
Neither proposes enough new revenue to fund their proposals, though Mr. Trump would likely bloat the federal deficit more than Ms. Harris.
The history of the Trump and Biden administrations indicates that Congress is reluctant to find enough new revenue to finance either new spending or corporate tax cuts. That’s why the deficit grew from 3.1% of GDP in 2016 to 4.6% and 7.0% in 2019 and 2024.
Both would confront unfair competition from China albeit more so with Mr. Trump.
Yet, relying on industrial policies vs. lower business taxes can have similar macroeconomic consequences.
After four decades of decline, manufacturing employment have climbed with stronger subsidy and tax support through the Obama, Trump and Biden years—free enterprise but with an assist.
Investing on the outcome of an election—especially one so closely contested—is a risky business.
Suffice it to say, if Ms. Harris wins EV manufacturers like Tesla and Rivian, EV charging network operators like ChargePoint Holdings and Beam Global and solar stocks like First Solar and Sunrun and their suppliers would get an extra assist.
Whereas if Mr. Trump prevails legacy automakers still reliant on internal combustion engines would benefit, as would oil and gas sector stocks like Baker Hughes, Exxon-Mobile and Occidental Petroleum.
With all the expected investment and fiscal stimulus, inflation could be a problem, but real growth and profits should be robust. The broader equities market will prosper.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.