Source: China Merchants Macro Meditation

The following is the main text

I. Process and current progress of the 2024 US election

The US presidential election (also known as the “US election”) is held every 4 years. Specifically, there are five major steps in the US presidential election (Figure 1).

1) Primaries (Primaries)/Pre-Elections (Caucuses): From mid-January to June 2024, the Republican Party and the Democratic Party will use primaries or pre-elections (also known as caucuses) in each state to select candidates within the party supported by that state. Each state chooses how to hold its primary or pre-election meetings.

2) National Convention (National Convention): The Republican National Convention will be held on July 15-18, 2024, and the Democratic National Convention will be held on August 19-22 to separately elect the party's presidential candidates and officially announce the vice presidential candidates running for the election.

3) Presidential General Election (Presidential General Election): A general election in which all eligible citizens can participate will be held on November 5, 2024. Citizens can vote for any presidential candidate (regardless of their own political party, whether they have participated in the primary election, or who they have voted for before).

4) Electoral Voting: The US presidential election is a direct election by appointment, using the Electoral College system (Electoral College). Each state allocates electoral votes according to population size, and there are a total of 538 electoral votes nationwide. A presidential candidate who wins a majority of popular votes in the general election gets all of the state's electoral votes (winner-take-all), and can be elected if they get more than half (270 or more) of the electoral votes. Electoral College votes were held in their respective states on December 17. The electoral votes will be filed and handed over to the National Assembly by January 3, 2025.

The president is not elected by universal suffrage, but by electoral college votes; the November 5 universal election determines who the state's electoral college will vote for. Although the Constitution does not require the state's electors to vote for presidential candidates elected by the state's universal suffrage, if the electors vote for someone else, they may be disqualified or even sued by their state.

5) The results were announced, and the new president was sworn in: On January 6, 2025, the National Assembly held a joint session to calculate electoral votes, and the Speaker of the Senate announced the final results. If no candidate wins at least 270 electoral votes, the House of Representatives will directly decide the presidential election under the 12th Amendment to the Constitution. The new president and vice president were sworn in on January 20, 2025.

The progress of the current US election: The two parties are promoting primaries and pre-elections, focusing on “Super Tuesday” on March 5.

The candidate within the Republican Party is Trump vs. Hailey (DeSantis and others have announced their withdrawal). Trump has won 2 games in a row (January 15 Iowa preselection and January 23 New Hampshire primary election). The remaining states will host primaries from February 8 to June 4. The Democratic Party candidate is Biden vs Williamson vs. Phillips. The primary/pre-election has not yet started. The first match will be held in South Carolina on February 3, and the final match will be held in Guam and the Virgin Islands on June 8.

On March 5, 16 states will host the Republican and Democratic primaries on the same day, including California and Texas, which are in the top 2 by population, and important swing states such as North Carolina. These 16 states hold more than one-third of the votes, so this day is critical to the final results of the primary election and is known as “Super Tuesday.” Follow the voting types and voter turnout in several key states on “Super Tuesday,” and may provide some instructions for predicting the election results.

There is basically market consensus on the primary election results, that is, Trump won within the Republican Party, Biden won within the Democratic Party, and the two will compete on Election Day on November 5. According to public opinion survey results from the 270towin website, as of February 1, Biden's approval rating within the Democratic Party was 74%, far ahead of the other two candidates; Trump's approval rating within the Republican Party was 76.6%, which also had an absolute advantage.

II. Sorting out the political opinions of the main presidential candidates in 2024

Currently, there are 2 Republican candidates left: Donald Trump (former president, businessman) and Nikki Haley (former US ambassador to the United Nations, former governor of South Carolina). There are 3 Democratic candidates: Joe Biden (current president), Marian Williamson (writer, never held a political office), and Dean Phillips (congressman, businessman).

Republican candidate: Trump and Haley have similar positions on most domestic policy issues. They all oppose Obamacare, like tax cuts, and advocate the expulsion of illegal immigrants. In terms of trade policy, Haley praised Trump's policy of imposing tariffs on China and called for more measures to “decouple” the US economy from China.

The differences between the two are mainly on aid to Ukraine and the issue of democracy. Haley is a staunch supporter of Ukraine, while Trump said “America has sent so much equipment that we have no ammunition ourselves,” and he promised to drastically cut US international aid if elected. Regarding the “Capitol Hill Incident” of January 6, 2021, which attempted to overturn the results of the 2020 general election, Haley believes that this act was very wrong and that democratic norms should be respected.

Democratic candidate: Marianna Williamson participated in the California House of Representatives election in 2014 but ended in failure; she competed for the Democratic candidate in the 2020 presidential election and later withdrew from the election. Dean Phillips has been a member of the House of Representatives since 2019 and is often regarded as a centrist and moderate Democrat.

Williamson and Philips' main political opinions are similar to those of Biden, including supporting social security and health insurance, student debt relief, clean energy investments, supporting access to citizenship for undocumented immigrants, and supporting funding for Ukraine and Israel. The difference between the three is that Biden and Williamson promote tax increases for the rich, while Phillips's attitude is more vague; Biden has a harsher attitude towards China, saying in the “National Security Strategy” report released in October 2022, that China is the biggest threat to US security [1]; while Williamson and Phillips have a relatively moderate attitude towards China.

Independent and independent parties: In this election, independent Robert Kennedy Jr. currently has a high approval rating. His father is former Attorney General and U.S. Senator Robert Kennedy, and his uncle is former President John Kennedy. He first ran as a Democratic Party, then announced his withdrawal from the Democratic presidential nomination competition in October 2023 and ran as an independent person.

Like Trump, Robert Kennedy Jr. supports stronger border enforcement and opposes continued aid to Ukraine; like Biden, supports student loan debt relief, and supports health insurance and education spending. There are also independent Connell West (university professor, philosopher, political activist) and Jill Stein (doctor) of the Greens, who are more active, but their approval ratings and popularity are limited, so they had little impact on the election. Candidates from small political parties and independent candidates generally do not have a national congress. They are required to submit petitions collected with signatures from voters supporting them to participate in the national general election on November 5.

3. 2024 may return to “Biden vs. Trump”. Currently, Trump is leading in approval ratings

The 2024 US election is likely to repeat the “Biden vs. Trump” situation. Current public opinion polls show that Trump has an advantage over Biden. According to the US RealClearPolitics website, as of January 30, the average approval rating in Trump's polls was 47.8%, Biden's average approval rating was 43.9%, and Trump was 3.9 percentage points ahead of Biden (2.3 percentage points ahead of Trump at the end of 2023). From January to October 2023, the approval ratings of the two were similar, and Trump's lead has been expanding since November 2023.

According to data from the US FiveThirtyEight website (Figure 6-7), Biden's approval rating fluctuated and declined from March 2023 to January 2024. The reasons include the collapse of SVB, debt ceiling issues, government shutdown crisis, aid to Ukraine and Israel, still high prices, and a rebound in oil prices. Trump's approval rating has risen significantly since the second half of 2023. The main reason is that Americans think Trump will do better than Biden on economic issues. The unemployment rate continued to decline during Trump's term, and inflation was running well around 2%.

The key to the election is who can win in the swing states. There are 7 key swing states in the 2024 US election: Arizona (AZ), Georgia (GA), Michigan (MI), Nevada (NV), North Carolina (NC), Pennsylvania (PA), and Wisconsin (WI). According to The Hills statistics (Figure 8), out of the country's 538 electoral votes, the blue state, which supports the Democratic Party, has 226 votes; the red state, which supports the Republican Party, has 219 votes. In other words, apart from swing states, the Democratic Party and the Republican Party are almost evenly matched; the key to the election is who can get the support of more swing states.

Trump's approval rating in polls is higher than Biden's in almost every key swing state. Current polls show that Trump's return to the White House is more likely.

However, there are still 9 months before the general election, and any changes in the election situation are possible. Even traditional blue (red) states may turn red (blue) at the end. For example, Arizona voted for the Republican candidate for five consecutive presidential elections from 2000 to 2016, but switched to the Democratic Party in 2020.

In addition to changes in election conditions in swing states, there are also two risk points worth paying attention to in this general election.

The first is the impact of independent candidates' votes. Robert Kennedy Jr. announced his withdrawal from the Democratic Party candidate race in October 23 and instead ran as an independent candidate, which actually increased the risk of Biden losing the election. As mentioned earlier, if no candidate wins an absolute majority of electoral votes (at least 270 out of 538 electors), the top three candidates will vote in the House of Representatives. According to the US Constitution, the House of Representatives “shall immediately elect the President by voting.” If Robert Kennedy Jr. divides enough electoral votes, and neither Biden nor Trump reach 270 votes, then the House of Representatives will eventually vote to elect a new president. Currently, the Republican Party holds the majority of seats in the House of Representatives.

According to a public opinion poll in January of this year, voters are highly fond of Robert Kennedy Jr. Figure 10. In the Harvard Harris poll, 49% of respondents said they supported or were very supportive of Robert Kennedy Jr., higher than Biden (41%) and Trump (48%); 31% of respondents said they didn't or were very unsupportive of Robert Kennedy Jr., which was lower than Biden (55%) and Trump (48%).

Second, Trump is facing 4 criminal trials this year (see Table 4). Criminal charges do not prevent Trump from continuing his campaign; US law does not prohibit those who have been criminally charged from participating in the election campaign. However, handling the case would take time, energy and money, and the subsequent trial of all four cases required Trump himself to attend court. Furthermore, it is uncertain whether this will have a positive or negative impact on Trump's approval rating. Currently, Trump is facing lawsuits, but his approval rating is rising instead of falling.

4. The key to determining approval ratings: prices and the economy

The ruling party's vote rate in the general election is positively related to the actual income growth rate of American individuals and the real GDP growth rate. As shown in Figure 12-13, the higher the real GDP growth rate in the US election year, the higher the ruling party's vote rate in the November general election. The correlation between actual personal income growth and the ruling party's vote rate is even stronger. Real personal income growth depends on factors such as nominal wage growth, property income growth, and inflation. For Biden, who is in office, ensuring an increase in personal income this year is very important for whether he can be re-elected.

Looking at every 4 years as a cycle, it can be seen that before the general election, the economic growth rate usually gradually increased (of course, there are exceptions, such as the 2008 subprime mortgage crisis and the sharp decline in economic growth in that year due to the COVID-19 pandemic in 2020), while the economy usually declined after the general election. The logic behind this is that before the general election, rulers tend to stimulate the economy through administrative means to ensure that they can be re-elected. However, after the general election, the momentum to stimulate the economy declined, and the economy will decline somewhat in the short term. The midterm elections are held two years after the general election. Since economic performance usually declines after the general election, the ruling party usually does not perform as well as expected in the midterm elections and tends to lose seats in the National Assembly.

According to public opinion polls, economic/personal financial conditions are the primary factor that voters consider when making voting decisions. However, issues such as climate investment, abortion rights, gun control, immigration, international aid, and trade tariffs rank behind the economy in importance. According to a January Harvard Harris poll, people were asked “What topics are you most concerned about?” At the time, 38% of respondents chose “inflation” far ahead of other options. In Ipsos' January poll, the most important topic for respondents was “personal financial status” (Figure 14).

When it comes to dealing with the economy and inflation, voters think the Republican Party is superior. According to the Ipsos poll (Figure 15), voters believe the Republican Party is doing better on economic issues/crime reduction; the Democratic Party is doing better on student debt relief/abortion rights/climate change issues. The Morning Consult poll also reflected this result (Figure 16). Regarding dealing with economic issues, 39% of respondents said they trust the Democratic Party more, 48% trust the Republican Party more, and 13% say they are unsure. Since the Republican Party is more trusted by voters on the economic issues that have received the most attention, looking at the November general election, the Republican Party is more likely to win.

For Biden, the key to voter approval ratings is to ensure that inflation does not rebound. As can be seen from Figure 19, the trend of Biden's approval rating is basically the same as the trend of the US consumer confidence index. Also, as can be seen from Figure 20, the trend of the University of Michigan's consumer confidence index and CPI growth rate is the opposite. This indicator appears to be an “inflation satisfaction” index for the US residential sector. 2021-Q4-202Q2 was the most severe period for the US inflation situation. The CPI growth rate reached a peak of 9.1% in June 2022 and declined in July 2022; President Biden's approval rating continued to decline during the period of soaring inflation, and Biden's approval rating also rebounded in July 2022.

Over the past 40 years, in order to ensure election victory, the ruling party has either promoted fiscal leniency or monetary easing in the election year. There is no hope for further fiscal easing this year, so monetary policy has become an important gripper for the Biden administration. However, the premise of this framework is that without inflationary pressure, moderately broad currency can effectively boost the economy and asset prices, and increase voters' affection for the ruling party. Today, voters are still dissatisfied with high inflation, and monetary leniency may increase voters' disgust and reduce Biden's win rate unless employment deteriorates.

As a result, the Federal Reserve may not cut interest rates very fast in 2024. According to CME FedWatch data, as of February 1, the market expects to cut interest rates 6 times in 2024 (25 basis points per meeting starting with the May interest rate meeting). We believe that judging from the current situation, it is not very likely that the Fed will cut interest rates in the first half of the year, and market interest rate cuts may fall again and again. Interest rate cuts can only be triggered when employment data or asset prices deteriorate significantly. However, at present, the two numbers of US residents are still extremely healthy, and employment data is still strong. It is expected that interest rate cuts will not be necessary in the first half of the year; strengthening confidence that inflation will continue to return to 2% and ensure that inflation does not rebound is the main task.

Risk warning

The US economy and monetary policy exceeded expectations, and the US election situation exceeded expectations.

NOTE:

[1] In October 2022, the Biden Administration released the National Security Strategy Report

https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/12/fact-sheet-the-biden-harris-administrations-national-security-strategy/

Editor/Somer