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The U.S. presidential and congressional elections will be closely watched and, depending on their results, may generate policy uncertainty. S&P Global Ratings expects the consequences for credit to be predicated on policy outcomes—with potential changes in tax policy, trade relations, and financial-sector regulation the most meaningful for credit.

What We're Watching

With the U.S. presidency and 34 of 100 Senate seats (as well as all 435 House seats) up for grabs on Nov. 5, the composition of Congress will inform the prospects for policy. A unified government would likely facilitate budget, government funding, and debt ceiling negotiations, while a split would make passage of any sweeping legislation challenging.

In the meantime, financial-market volatility could increase in the near-term, if the result of the presidential election is unclear or in dispute. Moreover, broader policy uncertainty until a new administration clarifies its policy proposals once in office could bring about a wait-and-see investment climate, hurt business and consumer sentiment, and curb economic activity.

What We Think And Why

From a credit perspective, changes in tax policy, trade relations, and financial-sector regulation policies could have implications.

Various provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which lowered the corporate tax rate to 21% from 35%, will expire in 2025. As a result, corporate tax deductions in the TCJA that have been phasing out, such as interest deductibility, bonus depreciation, and deductions for research and development expenses, will all likely also be up for debate, regardless of the election results.

Higher corporate taxation would, in our view, affect companies' tax cash outflows and thus cash available to service debt, all else being equal. However, any change in the corporate tax rate is unlikely to take effect before 2026 (unless it's applied retroactively).

On trade, we believe higher tariffs and any international responses would result in inflationary pressures, including higher input costs for companies, higher costs for consumers, or both. Higher tariffs on imports from China (and any retaliation from China) could add to margin pressures for some sectors, hamper market access, and accelerate supply-chain diversification away from China.

The supply chain implications will likely be more acute for sectors that rely on highly engineered products—such as high tech, renewable energy, and autos. Cutting-edge products require specialized manufacturing facilities, uniquely trained staff, and raw materials that may not be available locally. Shifting these supply chains will require comprehensive efforts, time, and significant investments.

Sectors driven by commoditized goods—such as retail, consumer goods, and building materials—have less complicated and more widely adopted manufacturing processes, and there may be more opportunities to move to different suppliers. Still, the transition could be costly and perhaps precarious, given these companies' narrower cushions to absorb losses.

More broadly, geopolitical risks remain elevated, and U.S.-China trade tensions will likely persist regardless of the outcome of the presidential election. A further worsening of tensions between the world's two biggest economies would likely impede supply chains, disrupt investment and capital flows for both countries, and increase the risk of retaliation against U.S. tech companies, in particular.

Other industries may benefit from higher tariffs. These include capital goods manufacturers, which have adopted more-diversified sourcing strategies and lowered their reliance on Chinese imports in recent years. Also, some U.S. chemical subsectors could benefit from higher product prices if imports of competing products from China become more expensive.

On the financial front, we think material changes to bank regulation are unlikely irrespective of the election outcome, but it could affect to what degree regulation is strengthened and set the tone for future supervision and enforcement.

Bank regulation was last eased early in the Trump Administration when both houses of Congress had Republican majorities. A similar alignment in 2025 may lower the odds of regulatory tightening. On the other hand, if Democrats control both the presidency and Congress, we expect the current regulatory focus to remain largely unchanged—although scrutiny of other aspects (such as bank mergers) could increase.

A divided outcome between the presidency and Congress would limit both parties' ability to influence bank prudential regulation. Either way, we think most pending bank regulation won't be finalized until after the election, including the Basel III endgame proposal.

What Could Change

From a sovereign-ratings perspective, fiscal challenges remain the sovereign's key weakness. We expect the central government budget deficit to remain near current levels in 2025-2026—which means the U.S.'s net general government debt could soon exceed 100% of GDP. We also expect that the next Congress and administration will address the debt ceiling and act before the Treasury runs out of capacity to deploy extraordinary measures to avoid a breach of the ceiling.

In the nearer term, investors could become more risk averse as the election draws near, especially given how tight the presidential race is, according to most polling. If the result of the run for the White House is unclear or in dispute, financial-market volatility, if it persists, could prove a setback to what have been broadly favorable credit conditions for most U.S. borrowers.

Writers: Molly Mintz and Joe Maguire