Making Sense Of The Economics Amidst The Election Fog
What To Expect From The Count It is taking much longer than usual to establish the final result of the US Presidential election, but Democratic candidate Joe Biden is nearing the threshold for victory to become the 46th US President. Not all votes have been counted and President Trump is already legally challenging the result in lawsuits across the country, so a final confirmation may be days if not weeks away. However, markets are increasingly trading on the assumption of a Biden Presidency from January.
What To Expect from A Biden Presidency A Biden So how much difference will that make? Clearly there will be a difference in style. Biden is a career politician and all the indications are that his approach to the Presidency will be more traditional and lower key than his predecessor. That includes fewer tweets and less public criticism of international organisations and traditional allies. In terms of the substance of policy. However, Biden will be massively constrained by the Democrats’ failure to win control of both houses of Congress. Beforehand, the polls indicated and Democrats were hoping that they would retain the lower chamber with an increased majority and also gain control of the Senate. In reality, it seems that opinion polls underestimated both the Trump vote and for Republican candidates in general. The so called ‘Blue Wave’ has failed to materialise and Democrats looks set for a slightly smaller majority in the House and the Republicans look on course to retain the Senate (four seats remain to be declared but a Democratic swing now a possible not the probable outcome).
That means Biden will not be able to get legislation through Congress without Republican support. In the current highly partisan atmosphere that is a recipe for continuing gridlock. The constraints will be most immediately apparent in relation to the ongoing challenge of passing a new fiscal stimulus bill to provide a near term boost to the economy. Federal Reserve Chair Powell and his colleagues have been repeatedly calling for this additional support but Democrat and Republican politicians failed to agree on its the size or content before the election. Democrats had clearly hoped that post-election they would be in a position to pass a much bigger package. That possibility now seems to be ‘dead-in- the- water’.
US Economy Under Biden At best, a much smaller package now seems likely (probably something around $2trn). The chances of an early deal, however, may have increased. A larger Democrat package would have needed to wait until January when the new President takes over. In contrast, the present ‘lame duck’ Congress may be prepared to pass something sooner and take credit for a smaller compromise bill. The political constraints also mean that Biden’s more medium term fiscal aims may need to be less ambitious. Beforehand, he talked about a ‘Green agenda’ and of more infrastructure spending and R&D, paid for in part by tax rises on parts of the corporate sector and on wealthier individuals. Much of this now seems unlikely to get through Congress. The Biden campaign also talked about the likelihood of stronger anti-trust policy particularly focused on tech companies. The prospect of major changes in this area now looks low. Biden may have more room for manoeuvre on international policy and trade policy. It was noted earlier that the new President may take a more conciliatory line towards international organisations and allies.
Nevertheless, in key aspects of trade policy his approach may seem little different from Trump’s. In particular he has talked about encouraging companies to bring production back to the US, both through the carrot of tax credits and the stick of tax penalties on US companies. This hardly sounds like a whole hearted endorsement of ‘free trade’.
What A President Biden Would Mean For Brexit For the UK the most immediate issue may be Biden’s attitude to negotiations on a new trade deal given that he is of Irish American decent and has previously commented that making a deal may be difficult if the ‘Good Friday Agreement’ came under threat.
What A President Biden Would Mean For Covid-19 Finally, it should be noted that the political outcome will do nothing to change the number one issue for markets which is how further the pandemic has to run and what that means for the economy.
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