Election 2024: Implications of the U.S. Presidential debate | June 28, 2024

Broad implications of the debate

President Biden’s debate performance last night sent a shock wave throughout the Democratic Party.  I will not recount the debate here – it will be chewed over by the media in the coming days more than most of us could bear to listen to.  But I wanted to offer a couple of thoughts of the broader implications of the debate:

• Democrats are now deeply concerned President Biden’s performance will have a severely discouraging impact on Democratic voters and any Independents who might be thinking of voting for Biden. It is not that they are going to vote for Trump now – instead, they just will not vote or vote for an independent who has no chance of winning.  We will see if that bears out in the coming day via polls, but assuming this is a correct assumption, the biggest impact – aside from the presidential vote – is on House and Senate campaigns. If Democrat voters do not show up to vote for Biden, then they are not showing up to vote for Democratic House and Senate candidates.
• This means the odds of Republicans keeping control of the House likely went up considerably last night. Republicans were already likely to win a narrow majority in the Senate but, again, Democratic voter despondency could increase the number of Senate seats Republicans win.
• But, very importantly, under no scenario do we see Republicans winning large majorities – perhaps a two or three seat majority in the Senate which means not enough votes to overcome filibusters by Democrats. So, do not expect a Trump presidency to be able ram through any legislation easily and without moderating forces in the Senate.
• For Trump, Biden’s poor performance made for a good night. But early polling does not suggest he actually picked up new voters in any meaningful numbers. CNN has a poll out this morning that 81 percent of watchers did not change their minds.  But we believe Biden likely lost any uncommitted Independent who were thinking of voting for him – they will now likely look increasingly to independent candidate Robert Kennedy Jr. and other candidates (but not get particularly enthusiastic for any of them and not in such numbers that Kennedy could win).  And many of them may decide simply to sit this election out and not vote.

Will President Biden be replaced as the Democratic candidate?

As for the massive buzz among Democrats that Biden needs to withdraw from the race and be replaced, we do not see that happening.  How would that even work?  Democrats would have to magically come together, unified, on a candidate.  If anything, we see a virtual civil war potentially happening (and may be on the verge of now) within the Democratic Party on how to proceed.   Even if Democrats could quickly agree on a replacement, how do you sell that candidate in four months – including two months (July and August) when most of America is on vacation? 

What could this mean for markets?  Two initial thoughts.

Taxes – If the scenario plays out that Trump wins and Republicans win both chambers, then the Trump tax bill, which is scheduled to begin expiring in 2025, will be extended.  But there will be modifications and fights about a host of issues that various factions in the Republican Party want changed such as SALT (State and Local Taxes).

Major Foreign Policy Issues – I know a number of the current senior Trump foreign policy advisors and my discussions with them have led to thoughts on the following:

• Russia: I’ve picked up that Trump is actually personally angry with Putin for making the investigations into Trump’s supposed Russia relationships. Putin put a full-scale propaganda campaign globally to support the idea just to diminish the US – and Trump understands that now.  Additionally, the Trump team repeatedly have made the argument to me that Trump believes there is no real strategy for Ukraine to win – and that Biden is just trying to manage the situation. “We pour money into Ukraine but tell me how we beat Russia?  Where is that strategy?”
• China: We know Trump’s China strategy and it is very much like what we have seen the last 3 ½ years from Biden. When you compare the two policies, there is very little difference and we do not expect much change if Trump wins.
• NATO: We do not expect Trump to move to withdraw from NATO. And most importantly, he cannot. This last December, Congress passed an amendment in the Defense Appropriations bill that now requires a President to get 2/3rds of the House and Senate to vote in favor of withdraw.  But we do expect Trump to keep battering those NATO members who are still failing to pay the required 2 percent of GDP into NATO (we are looking at you, Canada).
• Iran/Greater Middle East: Perhaps the happiest person about last night’s debate was Israeli Prime Minister Benjamin Netanyahu. A close ally of Trump, he will be more confident to continue the war in Gaza today and potentially an offensive against Hezbollah in Lebanon (see yesterday’s Financial Times report about Israel’s strategy to create a “dead zone” between Israel and Lebanon). For Iran, which is going through serious economic challenges and about to vote on a new president this weekend, it will likely give them pause to instigate any new serious actions in the region. But will also likely push them to accelerate their nuclear weapon program.

What is most important for Donald Trump now?

In my view, it will be important that Trump 1) does not make any controversial statements that shift the spotlight away from the internal Democratic Party battle that is emerging and 2) pick a good, strong Vice President who voters – specifically Independent voters – can be comfortable with and possibly see as the future of the Republican Party when Trump is out of office. Trump said earlier this week he will not make that announcement until the Republican Convention, which is in Milwaukee, WI on July 15.