A new US President – What to expect
From the potential end of COVID-19 to increases in US GDP and employment, David Adams looks in depth at President-elect Joe Biden’s promises and what they might mean in reality, including ending the pandemic, the economic outlook and UK trade relations
The most divisive US presidential election in decades entered its final phase on 7 November, four days after the polls closed, when Joe Biden’s lead over Donald Trump in the state of Pennsylvania became unassailable, giving him victory under the electoral college system.
It was a tortuous end to a poisonous election but, barring dramatic and unlikely events in multiple US courtrooms, Biden will be the 46th President of the USA – indeed, as we went to press, Trump had still not conceded, but was at least allowing the transition process to begin. What will that mean for the US economy, the global economy and global trade – and for businesses in the UK?
Biden’s first priority will be to try to bring the COVID-19 pandemic to an end. In November, the virus was still raging out of control across the US and will surely claim many thousands more lives before Biden’s inauguration in January 2021. It must be hoped that by then the Democrats and Republicans in Congress will have been able to agree a new economic relief package, after negotiations broke down before the election. But, as some Republicans have been backing Trump’s spurious claims of election fraud, this cannot be taken for granted.
Even if a relief package is agreed, Biden faces a hugely difficult task in repairing the economic damage the pandemic has caused – US GDP is expected to have fallen 4% during 2020. Trump had claimed to have managed the economy brilliantly prior to the pandemic, but his record is not beyond reproach. In October, Callum Williams, senior economics writer at The Economist, speaking at a webinar run by the magazine, said that job creation under Trump was due in part to favourable conditions that boosted employment in many markets, while both employment and wages had started to rise under President Obama’s administration.
Williams suggested that Trump’s tax cuts delivered much greater benefit to the wealthiest Americans than to the majority of the population; and that Trump’s ongoing trade war with China has had a noticeable negative impact on economic growth in the US. Tariffs and the trade war “hurt working-class Americans”, he said.
Even so, the fact that Trump presided over job creation and economic growth before the pandemic is one reason why the Republicans outperformed pollsters’ expectations in the election. Another was misinformation the Republicans spread about Biden’s policies, including the suggestion they amounted to socialism.
If implemented in full, Biden’s policies might have increased public spending by $7trn over 10 years, accounting for perhaps 3% of GDP: a significant figure, but far smaller than the 16% or 23% increases envisaged by his left-wing rivals for the Democratic nomination, Elizabeth Warren and Bernie Sanders.
But Biden’s plans were ambitious, including increased industrial policy and plans for significant investment in green infrastructure, including upgrades to electricity grids, rollouts of charging points for electric vehicles and extensive funding for research into renewable energy technologies.
Biden’s green revolution
One reason Joe Biden’s victory has been celebrated by many people around the world is that it will mark a complete reverse in US government policy towards the climate crisis. Biden will take the US back into the Paris Agreement on climate change, and he will reverse Donald Trump’s reforms that opened up more use of public land to extract oil and gas.
Biden’s plan for the environment is designed to enable the US to build a 100% clean energy economy, with net-zero carbon emissions by 2050. He hopes to make major investments in green infrastructure and research into renewable energy.
Even if his domestic environmental policies are impeded by Republican control of Congress, Biden will make the US a leader in the international effort to fight climate change once again – a position that China started to assume during the Trump years. This drive may also help to improve the US–UK relationship, as the UK government has similar aims to build new green industrial capacity and capabilities. George Riddell, Director of Trade Strategy at EY, thinks a Biden focus on green issues could ultimately have a positive effect on the UK economy too, not least because the City of London is becoming a centre for green finance.
Even presidential rhetoric will help add momentum to green industries, which have continued to grow in the US despite hostility from Trump – and now actually employ 10 times as many US workers as do the fossil fuel industries. Investment in renewable energies is now more attractive to mainstream investors than investing in fossil fuel industries.
Other notable policies included raising the minimum wage to $15 per hour; increased pre-school education spending; childcare tax credits; and free university education for families earning less than $125,000 per year. Biden also proposed immigration reforms that Oxford Economics suggests could increase net immigration from 600,000 to one million per year, contributing to a 0.2% increase in GDP.
However, many of those plans will now have to be cut back or shelved, because – barring Democrat wins in two Senate seat run-offs for Georgia during January – the party has failed in its second election aim: to gain control of the Senate.
A Republican majority in the Senate creates major problems for Biden. Nancy Vanden Houten, a US-based senior economist at Oxford Economics, suggests that some Republicans may be “getting deficit religion again” – meaning they will obstruct many proposals for increased public spending. One rare area of consensus may be action to curb the power of at least some of the largest technology firms, but this is not thought to be one of Biden’s top priorities at present.
Yet, even if the Senate proves obstructive, Biden could use executive actions to reverse some Trump policies, particularly on immigration, energy and environmental regulation. He could also use executive actions to reinforce Obama’s Affordable Care Act, damaged badly during the Trump years.
Biden will benefit from the fact that a low interest rate environment will make it easier for the government to borrow, while economic and financial volatility will help make lending to the US government continue to look like an attractive option to investors.
He also hopes to partially reverse Trump’s 2017 tax cuts, increasing income tax for those earning more than $400,000, and increasing corporation tax, capital gains and dividend taxes.
In a September 2020 research note, Oxford Economics suggested that a scaled-back version of Biden’s programme, ‘Biden-lite’, in which proposed revenue from increased taxation and spending plans were both roughly halved in comparison to the full proposals, would result in strong economic growth: up to 5.8% in 2021 if plans were implemented quickly, with a 1.4% increase in nominal disposable income and the creation of 1.5 million new jobs during the next four years.
In further notes written since then, including one published immediately after the election, Oxford Economics has suggested that the impact of the pandemic and the fact that the Republicans will retain control of the Senate will now restrict growth to 3.5% in 2021.
As well as trying to strike deals with a Republican Senate to implement at least some of his policies, Biden will need to persuade Congress to renew the Trade Promotion Authority (TPA) – Congressional authority for negotiating trade agreements – which expires in July 2021. In fact, his trade policies are likely to be closer to those pursued by Trump than some might have expected.
“I think even a Republican-controlled Senate would go along with most of Biden’s trade priorities,” says Welles Orr, Senior International Trade Adviser at US law firm Miller & Chevalier, and a former Trade Representative for the US Government under President George HW Bush. “One [policy] where he can probably work on a bipartisan basis is a major infrastructure bill along the lines of his Buy and Build Back Better America plan. Like Trump, Biden’s likely immediate focus will be on US manufacturing jobs affected by globalisation and technology automation.”
Oxford Economics suggests Biden’s attitude to the wider world more generally “would signal a less isolationist and more predictable US stance – generally conducive to stronger global business activity”. It suggests Biden might lift some tariffs currently applied to many Chinese consumer goods and agricultural products, and would certainly lift tariffs on steel and aluminium currently imposed on imports from other countries.
Biden will try to reinforce alliances that were neglected by Trump – with individual countries, but also with institutions such as the North Atlantic Treaty Organisation and the World Trade Organisation. He would also encourage other countries to work alongside the US in addressing problematic aspects of China’s economic and political activities, rather than pursuing unilateral action.
“Biden will get our allies in Europe, Canada and Mexico to apply pressure to China,” says Orr. “He may want to signal an interest in re-engaging with the CPTPP [Comprehensive and Progressive Agreement for Trans-Pacific Partnership – an agreement between countries including Australia, Japan, Canada, Mexico and Malaysia] to make clear to China that he will stick to a multilateral approach in engaging countries in the Indo-Pacific region.”
Biden would also seek to resolve the long-running US–EU Airbus dispute, the origins of which date back to 2004 but which Trump effectively escalated, imposing tariffs on a range of EU goods.
The likelihood that Biden will seek to strengthen the US–EU relationship also provides a strong incentive for the UK government to strike a trade deal with the EU, rather than ending the Brexit transition period without an agreement. Arguably, this also amounts to an important indirect benefit for UK businesses of a Biden presidency.
UK trade relations
What might Biden’s victory mean, however, for the prospects of a possible post-Brexit US–UK trade deal, long promised by pro-Brexit UK politicians and by Trump?
George Riddell, Director of Trade Strategy at EY, points out that the idea a full US–UK free trade deal might be struck quickly after Brexit was always fanciful, because a comprehensive deal would take a very long time to negotiate. He suggests that if Trump had won the election, any deal his administration might have agreed with the UK government in the near future would not have been comprehensive but rather a small-scale agreement similar to that agreed between the US and Japan in 2019.
Orr points out that if a US–UK deal is to be considered by Congress under the existing TPA, it will need to be presented to Congress by 1 April 2021. This seems unrealistic – particularly if Trump’s unwillingness to accept the election result delays the transition process.
If a deal is to happen, the UK government will have to hope that Biden lives up to his reputation as a pragmatist and an alliance-builder, because few of the signals coming out of Biden’s team related to Brexit and to the politicians that facilitated it have been positive.
Both Biden and Nancy Pelosi, Leader of the Democrats in the House of Representatives, have strongly criticised the UK government’s draft (at the time of writing) Internal Markets Bill, which they have suggested threatens both the peace process in Northern Ireland and the UK’s reputation as a nation that respects and obeys international law.
Biden’s ancestral connection to Ireland is one reason why he has a personal stake in the peace process. A second reason is that he was personally involved in work with the Clinton administration in the 1990s that contributed to the signing of the Good Friday Agreement in 1998.
British politicians who set much store by the special relationship between the US and the UK may be disappointed. Speaking at an online event run by the Institute for Government in late October, Sir Peter Westmacott, Senior Adviser for the US and the Americas Programme at Chatham House, and a former UK ambassador in Washington, suggested that a Biden White House will see US relations with the EU as being of much greater importance than its relationship with the post-Brexit UK.
In the longer term, volatility and instability are likely to continue to characterise US politics, the US economy and the global economy throughout Biden’s presidency. Even after the development of a successful vaccine, the impact of the pandemic will continue to cast a shadow across global economic development for years.
A second term
It is difficult to begin to assess the chances of Biden’s re-election in four years’ time in a deeply divided America. As a long-time Republican, but no fan of Trump, Orr believes the GOP “will have to rebuild and get rid of Trump and the whole Trump stigma … rebranding … a Republican Party that has to come with more moderate voices”.
But Vanden Houten is not sure the Republicans will do this. “I am one of those people who think Trump is a symptom of something rather than a cause of something,” she says. “On a personal level, many members of the Republican Party don’t like Trump, but they have continued to support him because he has enabled policies that they support.
“They saw him as a way to get big tax cuts for corporates and rich individuals. They came close to overturning the Affordable Care Act. They oppose policies that would shift our reliance on fossil fuels to renewable energy. It’s a way to get very conservative judges appointed to not just the Supreme Court but the other federal courts. I don’t think I see much change in the Republican policy agenda.”
Meanwhile, the Democrats will also continue to be affected by conflict between moderates and more left-leaning progressives, with the latter likely to push for a more progressive policy agenda.
“With Biden, the proof will be in how he sets up his government to work with the progressive part of his party,” Orr maintains. “The centre left has to take in the further left and work out how you govern and get re-elected four years from now.”
The presidency for which Biden has fought so hard is the most powerful office on earth. It offers a real opportunity to change the world for the better. But the challenges the new President faces are immense and daunting. Ultimately, we should all wish him luck: any success he does enjoy, particularly in spearheading efforts to combat the pandemic and climate change, will benefit many people around the world.
The most partisan Trump supporters may feel bitter in defeat, but they will have a chance to make their arguments again in four years’ time. For now, they – and their defeated candidate – might reflect on the words spoken by John McCain in his concession speech after losing the 2008 presidential election to Barack Obama. McCain urged his supporters to offer the new president “our goodwill and earnest effort to … find the necessary compromises, to bridge our differences and help restore our prosperity, defend our security in a dangerous world, and leave our children and grandchildren a stronger, better country than we inherited.”
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