Former White House official warns there's a 'high risk' of a disputed U.S. election outcome

SINGAPORE — Markets need to pay attention to the "high risk" of a disputed U.S. presidential election outcome as dynamics shift ahead of the vote, a former White House trade official said on Tuesday.

Such an election outcome could happen if a candidate deemed to have lost refuses to concede, or if he questions the legitimacy of the results. U.S. President Donald Trump declined to say whether he would accept the election results, which gave rise to concerns of a messy transition of power if Trump loses.

"I think it's a high risk and I do think markets need to pay attention to it. I've detected a real shift in the election dynamics in the last six to eight weeks," Clete Willems, a former deputy director of the National Economic Council, told CNBC's "Squawk Box Asia."

"In early August, I think the president ... felt like he was behind, I think right now he feels like he has the wind at his back for a couple of different reasons," he said.

Willems, now a partner at law firm Akin Gump, explained that there's a general perception that the U.S. economy is improving and the president has "done well in some of the law and order issues" — and that likely works in Trump's favor.

In addition, Trump is pressing ahead with nominating a new Supreme Court justice to replace the late Ruth Bader Ginsburg ahead of the November election. That would also help the president's chances, said Willems, adding that it's especially so if the nominee is Amy Coney Barrett, who's someone that excites the conservative base.  

"So, I think this is going to be an incredibly tight race. And I do think, unfortunately, we may not have an outcome immediately, probably going to be litigation that follows and I just hope that we can get this resolved in relative short order so there isn't uncertainty come January," he said. "I really do think that this is something we're going to have to deal with."

Republicans and Democrats have fought over the Supreme Court vacancy in the last few days, which looks likely to further stall negotiations for a much-needed fiscal stimulus package, said Willems.

The passing of Ginsburg set up a battle over the Supreme Court which had a 5-4 majority of Republican appointed justices. If Trump's nominee were to be confirmed, a 6-3 majority could have a huge influence on the shape of the law in the U.S. for a generation to come. 

Economists have said that the U.S. economy, which has been hit hard by the coronavirus pandemic, needs further support. But negotiations for the next round of stimulus hit an impasse as both sides cannot agree on what programs to fund.

"I think the fiscal package and the next round of stimulus related to the coronavirus was already in a lot of trouble. Make no mistake, the political atmosphere in Washington right now is quite poisonous, it's colored by the election and so I was already of the opinion that things probably were not going to materialize," said Willems.

"If everyone here is focused on trying to deal with the nominee, (they're) not going to have time to have the negotiations they need on that kind of package."