The riskiest election in US history

Donald Trump’s illness has rattled markets as investors try to understand the implications of an incapacitated American president or a bitterly contested election.

What happens if the US president dies?

The vice president takes over, under the 25th Amendment to the US constitution, adopted in 1967. This sets out that the vice president automatically becomes president (not just acting president). It also creates a process for an ailing president voluntarily to transfer power to the vice president. And it provides for circumstances in which a president either cannot or will not invoke the amendment. The vice president, backed by a majority of cabinet members, can invoke it by writing to Congress. But if a reluctant president is well enough to disagree, Congress must decide it by a two-thirds vote. There’s plenty of room for rancour, division and instability – and even more so if the vice president is also out of the picture. In those circumstances, the speaker of the House of Representatives becomes president. 

What if a candidate dies?

If Trump or Joe Biden withdraws or dies before election day, their party’s national committee would find a new candidate. They could promote the vice-presidential candidate (at risk of legal action from rival claimants) or hold an emergency convention, where delegates vote on the new nominee. The problem is that millions of votes have already been cast. It is almost inconceivable that the election would be delayed: its timing is fixed by the constitution and delay would require rapid (and unlikely) agreement by Congress. What’s most likely is that the election would take place on time with the deceased or incapacitated candidate’s name on the ballot, reckons Rick Hasen, a law professor at the University of California. However, under the electoral college system there would then “be a question if [state] legislatures would allow presidential electors of each state to vote for someone other than the deceased candidate” – namely the party’s replacement one.

Would they permit this?

In any kind of contested scenario the Supreme Court would probably have to decide “whether it is constitutional for states to ‘bind’ their electors to vote for the candidate who won the popular vote in that state” if that candidate is now dead or incapacitated, says New York University law professor Richard Pildes in The Washington Post. Although it might sound the most sensible route in the interests of political stability, it is not certain that the court would agree. This summer it ruled against three so-called “faithless electors” from Washington state, who ignored their state mandate to vote for Hillary Clinton.

What if a president-elect dies?

The 20th Amendment offers some guidance, but not certainty. If the winner died after the election but before the electoral college votes on 14 December, there would be legal-political wrangling. If the president-elect were to die after Congress formally declares the winner on 6 January but before inauguration on 20 January, the vice president-elect becomes president, says Pildes. If the president-elect were to die after the electoral college vote on 14 December but before 6 January, “things start becoming less straightforward”. The decision probably falls to the House of Representatives, with the vice president-elect becoming acting president if necessary until a choice is made. If the president-elect were to be merely incapacitated, “neither the 20th nor the 25th Amendment provides any guidance for what would happen next”, says Timothy Naftali in Foreign Policy.

Is a contested election likely?

Biden has firmed up in the polling and the betting markets over the past week, but the risk of a contested vote is real. For months Trump has questioned the legitimacy of the ballot – calling it “the most rigged” in US history – and claimed that the Democrats will try to “steal” the election. In last week’s presidential debate, the president refused to disavow white supremacist militias and urged supporters to go to polling stations and “watch very carefully” because “bad things happen”. His apparent preparing of the ground to contest his possible defeat has stirred fears about political instability, social unrest and constitutional mayhem if the result is anything other than a Biden landslide.

Is that realistic?

Yes. A particular focus for Trump is the shift to widespread postal voting. There is no evidence to suggest, as Trump frequently does, that mail-in voting facilitates fraud. However, there is plenty of reason to expect logistical challenges, delays, confusion and legal arguments. In one scenario, Trump could try to claim victory based on in-person voting on election night, while piles of mail-in ballots sit waiting to be counted in key swing states, such as Pennsylvania. Rosa Brooks, a law professor at Washington DC’s Georgetown University recently gathered grandees from both parties to “wargame” how different election results might play out. “A landslide for Joe Biden resulted in a relatively orderly transfer of power,” Brooks told The Washington Post. “Every other scenario we looked at involved street-level violence and political crisis.” 

What does all this mean for investors?

There are always good reasons for keeping a close eye on the election result. But investors are having to absorb the fact that political risk is a new factor in US markets, says Gillian Tett in the Financial Times. Recent movements in derivatives prices suggest that investors are scrambling to hedge against expected wild volatility around next month’s election. “The 2020 presidential election has seen an historically wide margin of event risk priced across asset classes by options markets,” says JP Morgan. What is “doubly striking” is that these derivative bets extend far beyond early November, into 2021, says Tett. At best, that suggests investors fear an “extensive dispute” comparable to Bush versus Gore in 2000. At worst, they fear a lasting crisis involving political impasse and unrest.

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