Despite legal challenges, Trump is the marginal favourite to win the US presidential election. abrdn puts the probabilities at 55% Trump and 45% Biden. But what a second Trump term would mean macroeconomically remains very uncertain. Four possible scenarios are outlined below. 
Our US election scenarios are not party-political views, but rather based on our reading of the polls, the policy agendas as so far articulated, and the experience of the previous Biden and Trump terms. 

Indeed, we frame the scenarios around the answer to three inter-related questions: who will win the presidency? What will be the split of Congress? And should Trump win, which policies will characterise his second term? 

Despite Trump being found guilty in the ‘hush money’ trial in New York, our reading of the polls means we think Trump is the marginal favourite. We peg the probabilities at 55% for Trump and 45% for Biden. 

The congressional outcome is likely to be highly conditional on the presidential outcome. 

Should Biden win, Democrats are more likely to flip the House and even stand a chance of holding the Senate. With or without unified congressional control, a second Biden term is likely to be characterised by policy continuity. So, we put the full 45% probability mass of Biden winning into the “Bidenomics” macro scenario.

A Trump victory would increase the Republicans’ chance of holding the House and would almost certainly see them take the Senate. The macro implications of a second Trump term will depend on the composition of Congress and the policy areas and governing style that Trump emphasises. 

These uncertainties are why we have split the 55% probability occupied by Trump winning the presidency into three scenarios, depending on the mix of trade, fiscal and other policies: Trump trade war 2.0; an “all-in” Trump pursuing his full agenda across trade, fiscal, and regulatory policy; and a scenario in which Trump focuses on tax cuts and de-regulation.

Particularly in the case of a Trump win, different aspects of his agenda could be on display at different times. Markets may price different outcomes over time, as the precise policy mix is revealed. Aspects of that agenda could support risk markets, but other aspects could weigh on risk appetite.

Paul Diggle, Chief Economist

The four scenarios

We outline four scenarios for the election – one in which Biden wins and continues the approach of his first term, and three variants of a Trump presidency depending on the policy mix.
  • First, a trade war-focused Trump, at 30% probability. A split Congress could see him pursuing those aspects of his agenda possible using executive order, dramatically increasing tariffs. This would push up on inflation, down on growth, and slow or stall monetary easing.
  • Second, an “all in” Trump who combines trade measures with tax cuts and higher spending under a unified Congress, at 15% probability. This would likely lead to significant market volatility.
  • And third, a market-friendly Trump focussed on tax cuts, deregulation, and the appointment of establishment figures, at 10% probability. The economy, and risk markets, could perform well.
  • By contrast, we broadly know what a second Biden term would mean macroeconomically – “Bidenomics”, likely hemmed in by a split Congress.

As such, the entirety of the 45% probability of a Biden victory is captured by this economic scenario, making it the single most likely outcome and what we use to condition our baseline. It involves an increase in targeted tariffs and no changes in real terms discretionary spending. Cyclical considerations around growth and inflation will dominate the outlook.