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As the U.S. election approaches, tariffs and taxes have become significant factors impacting the stock market, particularly in the retail sector, according to analysts at Wells Fargo.

The differing tariff policies proposed by the candidates could have a major influence on retail stock performance. Former President Trump has suggested imposing tariffs ranging from 10-20% on most imports, with potential levies on Chinese imports as high as 60%. These proposals have raised concerns among consumer companies, especially those heavily reliant on imports from China.

On the other hand, Kamala Harris is expected to maintain policies more in line with the Biden administration, which has already increased tariffs on certain products like steel and aluminum. The exact direction of broader tariffs under a Harris administration remains uncertain but is likely to provide more consistency than disruption.

Analysts at Wells Fargo caution that a further escalation in tariffs could strain geopolitical relationships, especially with China, creating additional uncertainties for U.S. companies dependent on Chinese imports. Retailers like Dollar Tree and Five Below are highlighted as particularly vulnerable due to their fixed pricing and limited ability to adjust to rising import costs.

In terms of taxes, Trump has pledged to decrease the corporate tax rate from 21% to 20%, with an even lower 15% rate for domestic manufacturers. In contrast, Harris has proposed raising the corporate tax rate to 28%, potentially undoing much of the tax relief implemented under the Trump administration.

While higher taxes under Harris could present challenges for large corporations, small businesses may benefit from her plan to expand the small business tax deduction. This could lead to shifts in competitiveness within sectors like retail and food service.

Both candidates have put forward proposals that could impact consumer spending, particularly among lower-income households. Harris has proposed expanding tax credits, while Trump has suggested various tax breaks. Low-income consumers, who typically have lower savings rates, could see an increase in spending in sectors like retail and food services as a result.

Stocks catering to lower-income consumers, such as Walmart and Dollar General, may see positive outcomes if stimulus measures are enacted. Corporate tax changes could directly affect stock earnings, with estimates for some companies potentially declining by as much as 10% under Harris’ proposed tax increase.

The outcome of the election will not only influence taxes and tariffs but also affect broader policies related to housing, labor, and energy, all of which could impact consumer spending and corporate profitability.

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