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Is a Blue Wave Win in the Cards?: The Week Ahead

The U.S. Public Policy group at UBS believes that a Blue Wave is a possibility this year, with Democrats capturing the White House and both houses of Congress.

The caveat is that the odds of that happening is “only marginally higher than President Trump winning re-election with a divided Congress.”

With just six more weeks to go before the U.S. elections on Nov. 3, it’s anybody’s guess as to what will happen after all is said and done. Meanwhile, voters are already casting their ballots, with residents in North Carolina sending in theirs by mail last week. Other states will begin in-person voting within the next few days.

If re-elected, Trump is likely to remain adversarial toward China, a report on ElectionWatch from UBS Financial Services said on Wednesday. That also means he will be willing to continue to use tariffs as a foreign policy tool if re-elected. “He has threatened to selectively impose tariffs upon, and to strip government contracts from, companies that refuse to relocate their operations to the U.S.,” the report noted.

As for fiscal policy, Trump is expected to rely on deficit financing to reduce tax rates, while Democratic nominee Joe Biden has already said he plans to raise taxes on certain U.S. households and on businesses and corporations. The top corporate rate under Biden would be 28 percent, versus the current 21 percent rate under the Trump administration. Biden’s also expected to reverse some of the tax cuts enacted in 2017 under Trump. Some of those are set to expire at the end of 2025 anyway.

Currently, the U.S. Public Policy group has a 50 percent probability of a Blue Wave win. Trump has a 35 percent probability of wining with the current status quo intact, and Rob Samuels, UBS consumer sector strategist, Americas, noted that this scenario would be mixed for apparel, mostly due to trade tensions. Brian Rose, senior economist, Americas, also noted that a Trump win would also mean “more uncertainty on trade and global conflicts.”

The group gave a 10 percent probability of a Biden win with a divided Congress, and a 5 percent probability of a Red Wave win for the White House and both houses of Congress. The latter is not expected to happen since the Democrats are expected to retain control of the House of Representatives.