Whispers are growing louder about a potential collapse in US equity markets this time next year – the days following the 2020 presidential election. Why are capitalist alarm bells ringing? Senator Elizabeth Warren, rather than early favourite Joe Biden, could be confirmed as the Democrat presidential nominee. This would pitch a candidate set on an overhaul of tax, trade, healthcare and more against Trump who, in his first term, nailed his pro-corporate colours to the mast. It is wrong to say that Warren wants asset values to collapse – or to put her in the same basket as Bernie Sanders – but she does seek a significant overhaul of the current order.
Domestically, Warren proposes wealth taxes on highest earners, higher capital gains tax, and perhaps most pivotally, repealing Trump’s corporate- and market-friendly ‘Tax Cuts and Jobs Act’ of 2017. Simultaneously, Warren would introduce a ‘Real Corporate Profit Tax’ of 7% on every dollar above $100m in profit. It is not just higher tax burdens that corporates would face, but the largest firms – particularly the champions of Silicon Valley and Wall Street – would be faced with potential breakup under an administration intent on increasing anti-trust enforcement.
Beyond their own borders, protectionism has been a worry for markets and economists since Trump took office, but the bite could become more unforgiving under a Warren administration. The very public war of words would likely cool, but the retreat from post-war liberalism may well accelerate. Whereas Trump has confronted China alone, Warren would almost certainly work alongside the likes of the EU as a more unified front to achieve goals, but with stricter preconditions on the rule of law, democracy and human rights. All of which are likely to find more opposition in Beijing and in the capitals of other trading partners.
We are still a long way from the election. Warren faces many hurdles, not just surpassing Biden and Trump, but also gaining a majority in the Senate. However, uncertainty over the future tax and regulatory regime could well add to current trade angst. Another thing for CEOs to worry about when mulling over their investment and hiring plans.