As part of S-RM’s ongoing tracking of elections in 2024, Gabrielle Reid and Markus Korhonen assess the significance and impacts of electoral outcomes for business.
Much has been made of 2024 being the biggest election year in history; far less attention has focused on the importance (or not) of these elections to business, specifically from a policy perspective. Analysis by S-RM’s Strategic Intelligence team reveals a complex picture: while market reactions to elections are tempered by the broader realities of international trade norms and economics, the business landscape is not insulated from outcomes at the ballot box. Businesses need to understand both the appetite a new administration has for change but also its ability to do something about it. This extends beyond a familiarisation of campaign promises or party manifestos or knowing who has a controlling share of parliament. Rather, it speaks to the interplay between precedent and drivers of change, and what successful shifts in policy, international realignment, and domestic instability could mean for business.
Perhaps then, what makes 2024 important as an election year for businesses is not the sheer number of votes set to be cast, but rather the degree to which the current global landscape makes promised change possible.
New governments set new rules
The impact of a change in government domestically is well understood. The government of the day has the authority to enact new legislation and drive policy direction in a country for the coming years; this matters less where the policy positions of the contesting candidates or parties are similar and radical change is unlikely. But in countries facing more volatile swings, elections have the potential to drastically change the rules governing the commercial environment, both at home and on the international stage.
The 2016 US election of Donald Trump as president is a case in point. The administration ushered in a period of unprecedented deregulation, corporate tax cuts, and trade protectionism – the fact that 2017 marked the largest US federal corporate tax reform since 1986, is telling. While some fluctuation in tax regimes and regulations is natural between administrations, bigger shifts can have effects that outlast the administration that implemented them; according to the Brookings Institution’s Tax Policy Center, for example, Trump’s tax cuts cost the fiscus roughly USD 1.7 trillion in lost revenue by the end of 2023. Some sectors benefited greatly from more relaxed regulations under Trump, while others faced new uncertainties, particularly when it came to their international exposures, some of which have endured under the Biden administration.
Domestic change causing overseas turbulence is unsurprising as studies indicate that a more right leaning executive, motivated by a national interest underpinned by unilateralism, is inclined to behave more aggressively in their foreign policy making than their left leaning counterparts. This can have a real impact on the international business landscape, especially when the lines between international trade and national interest become blurred. Again, the US administration between 2016 and 2020 offers some insights into the degree of change that can occur. Although the sources of a US shift away from multilateralism in international trade emerged prior to Trump’s inauguration, being at the helm allowed him to usher in major change in US trade policy, not least the attempt to exit the World Trade Organization. This offers a cautionary tale for 2024, particularly as many anticipate a rematch between Donald Trump and Joe Biden for the top job come November. The return of Trump in 2024 may once again intensify trade wars, as the administration uses import tariffs to bolster domestic industry, which will prove challenging for businesses with complex global supply chains.
Elections do not take place within a vacuum; they are influenced by the elections that took place previously and by the surrounding domestic and international context in which they occur"
While election swings are anticipated in several countries this year, the scale and speed of the previous Trump administration’s impact on policy both domestically and abroad may indeed still be the exception rather than the rule, and 2024 could offer more tempered change than the headlines suggest. There are several reasons for this but a key one is that elections do not take place within a vacuum; they are influenced by the elections that took place previously and by the surrounding domestic and international context in which they occur. A recent study, for example, into the effects of past national elections on party policy change in 23 established democracies indicates that past election results affect the size of policy shifts, with parties making larger shifts toward the centre in the wake of a previous election loss. With the Labour Party polling well ahead of the Conservatives at the time of writing, for example, the UK too faces the potential for a new government this year. Although campaigning for party leader under a banner of change, Labour leader Sir Keir Starmer – albeit a long-term centrist himself – has dialled back on his proposed reforms in order to entice the more centre-leaning voter. This could limit the immediate impact of a new party in Downing Street and bring with it far less change in policy that some may expect.
At the same time, electoral outcomes also depend on the state of the economy; proposed reforms are often penalised during economic contractions but rewarded in expansions, while prevailing economic conditions also impact voter turnout. According to one study, drawing on data from 317 presidential elections in 40 African countries over the period from 1960 to 2016, when the economy is growing, there is a positive effect on voter turnout. Such dynamics can temper the degree of real policy change a party is actually willing to make as they face the trade-off between electoral and partisan goals.
And, of course, institutional checks and balances, an enshrined commitment to the rule of law, and the established avenues for competing interests all serve to moderate policies in democracies. Elections can and do bring change, but that change is rarely sweeping. Particularly in consensus-driven institutional design, for example in countries where coalition governments are the norm, even radical parties’ agendas are curtailed in government. For instance, despite expectations that Italy’s right-wing government led by Giorgia Meloni would enact radical change on assuming office in 2022, for the most part it has conformed to established policy both at home and abroad during its first year in power. For individual businesses, both foreign and domestic policy changes can impact the bottom line, so tracking and preparing for likely election outcomes is worthwhile, but in many cases systemic change is likely to be more muted and incremental.
Some change, however, is still likely.
With polling indicating a more right leaning parliament in Europe is expected in June, a move away from liberalism will have policy implications for the continent. According to analysis conducted by the European Council on Foreign Relations – drawing on a combination of historical coalition-based voting precedents in the European Parliament modelled against the anticipated changes in parliament make-up in 2024 – significant policy changes this year will likely comprise more economic, fiscal, and regulatory freedom for member states, as well as shifts in position on environmental policies that could come to undermine the EU’s Green Deal framework. Though the effects won’t be immediate, they are likely to be real, particularly when it comes to declining consensus over a stronger single market amid the rise of economic nationalism and strategic ‘friend-shoring’ elsewhere. Examples of such economic nationalism abound. Trump’s “Make America Great Again” slogan was informed by a zero-sum view of international trade, and tied to an explicit agenda of reducing the trade deficit with key partners, most notably China. In Europe, economic nationalist parties (though it is by no means a unified bloc) have been growing in popularity since the early 1990s. And in the UK, the Brexit movement clutched onto the zeitgeist to secure the UK’s departure from the EU. China too has been transparent around its industrial policy ambitions globally, particularly when it comes to claiming the top spot for advancing technologies and control over the critical minerals that underpin them.
Leaders, their plans and their friends
Just how closely the world watched the 2024 Taiwan election is a reminder of the intertwined nature of domestic and global politics and the intersect with global trade. The leader of the day has influence over the nature of Taiwan’s ties with China relative to the West, with bearing on the state of play in the South China Sea. Yet, while the outcome of the January vote has seen another Democratic Progressive Party (DDP) president at the helm, the challenging make-up of the Legislative Yuan leaves President William Lai with fewer friends in parliament – with the DPP securing 51 seats against the Kuomintang’s (KMT) 52, and 8 seats for the Taiwan People’s Party (TPP) – to steam ahead with any drastic plans.
A second Trump administration will be eager cut back on costly foreign commitments, refocusing on an ‘America First’ agenda, while an emboldened ‘America’s Back’ administration under Biden will want to forge ahead to reinforce the role of the US in international organisations."
Similar limitations could be put on the US president should we see a split between the Republicans and the Democrats across the executive and the legislature. A second Trump administration will be eager cut back on costly foreign commitments, refocusing on an ‘America First’ agenda, while an emboldened ‘America’s Back’ administration under Biden will want to forge ahead to reinforce the role of the US in international organisations. Such plans can either be supported or hamstrung by the legislature and will have important implications for US allies globally. Meanwhile in the EU, the war in Ukraine, the Israel-Hamas conflict, the energy transition, and economic pressures will be met with varied solutions depending on the makeup of parliament. These examples all point to the importance of understanding the candidate or party at the controls, their foreign policy agenda, and the extant realities in attempting to achieve them.
What is important this time around is that global power balances are shifting more and faster than in recent decades. Amid the rise of multipolarity, there are new stakeholders vying for power. Countries like India, Saudi Arabia, Turkey, and Brazil are gaining influence, and the Global South seems determined to use any realignment to their advantage. These dynamics offer both new administrations and re-endorsed governments a time to review their foreign positions and foreign allies post-election. Any associated realignment will have real consequences for international trade alliances and agreements, impacting the strategies of multinational corporations and investors.
The real risk in elections
Business abhors uncertainty. By their nature, elections offer just this: uncertainty about the outcome, the prospect of radical policy change, potential disputes over the process, heightened attention on contentious issues, and the pitting of candidates’ supporters against each other. But for businesses, reading market or business-specific implications of elections is far more nuanced. For one, markets tend to price in current events quite efficiently because they reflect expectations on future performance. For example, statistical evidence shows that since 1860, there has been a negligible difference in either the volatility or performance of investment portfolios in US presidential election years compared to years without an election.
How much elections in 2024 will matter for business, however, cannot be neatly surmised from a one-size-fits-all calculus. As much as elections offer an easily measurable element to keep an eye on, they are situated in a much more complex set of market variables that will each play their part in determining fortune and frustration. In South Africa, where the May 2024 election is widely expected to result in the ruling African National Congress (ANC) losing its majority in parliament for the first time in the country’s 30-year democratic history, an already ailing economy is beset by challenges unlikely to be quickly resolved regardless of the election outcome. In India, a re-election of the Bharatiya Janata Party (BJP) under Prime Minister Narendra Modi looks likely, and while many have touted his stewardship of the economy, rising authoritarianism is likely to be as much of a feature of the post-election landscape as the accommodating business environment. The November presidential election in the US offers the potential for perhaps the most momentous confluence of factors for change. Trump’s penchant for flouting established political norms, coupled with an apparent disregard for the sanctity of democratic rules, means businesses will want to closely consider the ramifications of the election outcome, whether Trump wins or not. A Trump loss would likely lead to a renewed round of decrying the result, while a win portends significant foreign and domestic policy shifts at a time when several key geopolitical flashpoints hang in the balance.
Yet, even if election outcomes offer only marginal change, and business cycles are not beholden to election cycles, companies are neither insulated from nor immune against social and political realities. When government change happens, domestic and foreign policy change will, to a greater or lesser degree, follow. Companies’ cognisance of this reality across their international exposure is reflected in various surveys and reports that over the past few years have continued to highlight the growing importance of geopolitical events to companies’ risk postures. As a result, for both domestic and international issues, companies must develop and maintain an understanding of what matters to whom come election time, and ensure they have mechanisms in place to engage with issues and manage their actions appropriately. Many organisations do of course recognise this, but navigating company positioning on emerging or rapidly changing political topics and the political fortunes of politicians and parties, especially during election cycles, requires an agile approach.
The bottom line
The fact that 2024 is a record election year globally should, on the face of it, be cause for celebration rather than concern. Under the assumption that democracies, on average, generate more favourable economic outcomes to non-democracies, regular elections that contribute to democratic endurance are a valuable commodity. Yet, in reality, each election should be considered on its own merits within the appropriate context, and we should not downplay the concern that some of the big elections this year do have the potential to drive long-lasting uncertainty and instability. For businesses, setting aside resources to ensure resilience in the face of these headwinds may be their smartest investment of the year.
