As the US presidential election takes place, Indonesian analysts are expressing a preference for Kamala Harris over Donald Trump, citing her economic approach as more supportive of global market stability, particularly benefiting emerging markets like Indonesia.

As reported by Jakarta Globe, Helmy Kristanto, an analyst at BRI Danareksa Sekuritas, said that the starkly different economic policies of the two candidates could lead to substantial shifts in US economic direction. Trump aims to reinforce tax cuts from his 2017 Tax Cut and Jobs Act, proposing a corporate tax reduction to 15% and a broad 10% tariff on imports, especially from China. In contrast, Harris proposes maintaining tax breaks for those earning under $400,000, while increasing corporate taxes to 28% and expanding tax credits to address income disparities.

Recent polls suggest a potential Republican sweep, with Trump regaining the presidency alongside a Republican-majority Congress. Other possible outcomes include a Harris presidency with a split Congress, a Trump win with Democratic control of Congress, or a less likely Democratic sweep.

Kristanto highlighted that a Republican sweep could lead to market reactions similar to those seen after the 2016 election, such as higher US Treasury yields, a stronger dollar, and gains in US equities. These trends, however, may be balanced by pre-election adjustments. In Indonesia, rising US Treasury yields could lead to higher yields on Indonesian government bonds, potentially increasing debt costs as large bond maturities approach in the coming years.

A split government, where control of the presidency and Congress is divided, might moderate policy extremes. Congress could check Trump’s tariff policies or Harris’s tax increases, limiting potential impacts on budget deficits. “Both candidates’ populist tax proposals, without new revenue sources, could risk widening the fiscal gap,” Kristanto noted.

While a Democratic sweep is considered unlikely, it could bring steadier fiscal policies, fostering a predictable rate environment that benefits emerging markets. Analysts see this as particularly advantageous for Indonesia, as stable US rates could support local government bond yields and the Indonesian rupiah.

Kristanto added that a Republican victory might boost US equities but could cause volatility in Indonesia, especially if Trump’s tariffs affect Indonesian exports. Broad tariffs may pressure Indonesian exporters to reduce prices to stay competitive in the US market, one of Indonesia’s key trade partners.

A Democratic win, on the other hand, could offer greater fiscal predictability, helping support lower inflation expectations and more Fed rate cuts, potentially attracting capital flows to Indonesia where yields are higher.

Both candidates are expected to maintain a tough stance on China, keeping tariffs in place. The Inflation Reduction Act (IRA), which Biden introduced in 2022 to permit Chinese companies to partner in US manufacturing, has been divisive. Trump might let the IRA lapse by 2025, while Harris could amend it to restrict benefits for Chinese firms.