Unadorned Notes: November 4-6, 2024
Trump Defeats Harris, Reclaims Presidency; U.S. Markets Surge on Trump Victory; GOP Poised for Sweeping Agenda; U.S. Chip Firms Cut China Ties; Japan, EU Forge Defense Partnership
U.S. Politics, Economics, and Finance
Trump Defeats Harris, Reclaims Presidency: Donald Trump won the 2024 U.S. presidential election against Democratic nominee Kamala Harris, who assumed the nomination after Joe Biden’s withdrawal from the race. Trump’s victory, making him both the 45th and 47th president, was decisive across battleground states and marked only the second time in U.S. history a president has won non-consecutive terms. The Republican campaign successfully leveraged economic concerns and immigration issues, while benefiting from Elon Musk’s substantial financial backing and campaign support. Despite facing multiple legal challenges, including federal indictments and state convictions, Trump secured increased support among working-class voters, young people, and Latino men compared to his previous campaigns. The election’s outcome, which included Republican majorities in the Senate, positioned Ohio Senator J.D. Vance as Vice President-elect and established Trump as the oldest person ever elected president at age 78.1
QZ’s Comment: I predicted Donald Trump’s victory following the assassination attempt in Butler, PA. Shortly after that, the Democratic Party made a strategic shift, replacing Joe Biden with Kamala Harris, which I said would boost voter turnout and enthusiasm despite significant challenges ahead. Ultimately, that change wasn’t enough to swing this election. It’s likely that the Democratic leadership already anticipated this outcome months ago, but on the bright side, their decision to replace Biden may have helped keep down-ballot races from turning out much worse than they might have otherwise… Still, the Democratic Party has faced deep-seated issues over the past four years and even longer. To regain the trust and support of voters across the country—many of whom decisively turned right this election—they need to own up to their missteps, offer sincere apologies, and make meaningful changes.
U.S. Markets Surge on Trump Victory: U.S. stock indices surged to record highs after Donald Trump’s election victory, with the Dow Jones, S&P 500, and Nasdaq Composite all closing at peak levels. Investor optimism over potential tax cuts, deregulation, and pro-growth policies drove a rally, particularly in financials, with the S&P 500 bank index up 10%. The 10-year Treasury yield reached 4.479%, reflecting inflation concerns amid expectations of higher deficits. Bitcoin also hit an all-time high above $75,000, while the U.S. dollar posted its largest single-day gain since 2022. Rate-sensitive sectors like real estate and utilities lagged, as markets weighed the impact of potential Federal Reserve rate adjustments in response to Trump’s economic policies.2
Economy, Inflation Drive Trump Victory: Donald Trump’s victory over Kamala Harris in the 2024 U.S. presidential election was strongly influenced by voter dissatisfaction with the economy, particularly inflation. National exit polls showed that 31% of voters ranked the economy as their top issue, with 79% of those voters supporting Trump. Additionally, 45% of respondents reported being financially worse off than four years ago, and they favored Trump by a wide margin. Inflation hardships played a key role, with 73% of voters experiencing “severe hardship” from inflation backing Trump. Despite low unemployment and strong consumer spending, persistent inflation has kept consumer sentiment well below levels seen during Trump’s first term.3
Strong Economy Overshadowed by Inflation Woes: While the U.S. economy shows strength by traditional metrics, such as a low 4.1% unemployment rate and moderate 2.4% inflation over the past year, cumulative inflation since 2021 has eroded consumer sentiment. Inflation since President Joe Biden took office has risen nearly 20%, the highest pre-election term increase since 1984, contributing to voter discontent. Real disposable income per capita has grown 5.9% from December 2020 to September 2024, surpassing gains seen in 1996 and 2012 but lagging behind 1984 and 1988. Economist Douglas Hibbs’s “Bread and Peace” model suggests that income growth correlates with support for the incumbent, placing Joe Biden’s economic record as moderate. Despite low unemployment and wage growth, the inflationary impact on real incomes has weighed on voters’ perceptions of economic well-being.4
Trump Victory Signals Fewer Rate Cuts: Following Donald Trump’s election win, the Federal Reserve is expected to slow the pace of interest rate cuts, with a likely 0.25% reduction at its upcoming meeting. Markets now anticipate only two rate cuts in 2025, potentially ending the current easing cycle sooner than projected. Trump’s proposed policies, including tax cuts, tariffs, and immigration restrictions, are anticipated to boost both economic growth and inflation, reducing the need for aggressive Fed intervention. Stronger economic data has already shifted expectations for a shallower rate-cut path. Analysts remain cautious, noting that the full impact of Trump’s policies on inflation may take years to materialize.5
GOP Poised for Sweeping Agenda: With Republicans likely to control both chambers of Congress, Donald Trump’s administration is set to pursue major tax cuts, spending reductions, and deregulation efforts. Early priorities include extending 2017 tax cuts, funding border security, and reducing government agency powers, though these measures could add $7.5 trillion to the national debt over a decade. The Republican-led Senate may rely on budget reconciliation to pass fiscal legislation despite the filibuster, but this tool has limitations. Analysts caution that while Republicans cite revenue growth from prior tax cuts, inflation-adjusted data suggests overall tax receipts fell relative to the economy’s size.6
Geoeconomics and Geopolitics
U.S. Chip Firms Cut China Ties: U.S. semiconductor equipment companies, including Applied Materials and Lam Research, are instructing suppliers to avoid Chinese components and investors or risk losing their contracts. These directives align with U.S. policies aimed at limiting China’s role in critical technology supply chains due to national security concerns. The restrictions are expected to increase costs as companies struggle to find non-Chinese alternatives at competitive prices. The Commerce Department has imposed licensing requirements for sharing technical details with Chinese suppliers, with temporary permissions expiring in 2025. In response, some Chinese suppliers are creating joint ventures or subsidiaries in third countries to maintain access to U.S. clients.7
Chinese Hackers Infiltrate U.S. Telecoms: Chinese intelligence-linked hackers, known as Salt Typhoon, infiltrated U.S. telecom networks to monitor high-level national security and political figures, capturing call logs, texts, and some audio. The hackers exploited vulnerabilities in network infrastructure, including routers, and gained access to systems managing court-authorized surveillance, raising concerns they observed U.S. investigations into Chinese espionage. The breach, which lasted over eight months, included telecom providers outside the U.S., affecting an allied nation that shares intelligence with the U.S. Investigators identified the attackers as contractors for China’s Ministry of State Security, prompting U.S. agencies to intensify mitigation efforts. This incident follows other significant Chinese cyber-espionage campaigns, including the 2021 Microsoft Exchange hack attributed to the same ministry.8
Japan, EU Forge Defense Partnership: Japan and the European Union announced a new security and defense partnership focused on joint military exercises, defense industry collaboration, and space security. EU foreign policy chief Josep Borrell described it as a historic and timely agreement, marking the EU’s first security pact of this kind with an Asia-Pacific nation. The partnership aims to enhance naval cooperation and potentially support joint defense projects between Japanese and European firms. Japan is also increasing its defense spending to 2% of GDP by 2027 to counter regional threats, particularly from China. The agreement complements Japan’s calls for stronger regional security frameworks amid rising tensions over Taiwan and North Korea.9