Impact of the US Presidential elections 2020 on the Global Economy

Like it or not, when the USA sneezes, the world catches cold! In this three-part article I share my views on how the 2020 US elections, the Presidency of Joe Biden and the “America IS Back” are going to affect, shape and push the global economy.

You can read jump to parts two and three, by clicking here and here.

The 2020 Presidential polls were a watershed moment in more than one way for not only the democracy in the USA, but everywhere else in the world. With Joseph R. Biden Jr. taking oath of the office of the 46th President on January 20, 2021 the uncertain and divisive era of the 45th President Donald Trump came to an end.

With the run-off elections going the Democrats way, they have come to seize the control for Presidency, the Senate, and the House for the first time in a decade since the early years of Obama presidency. A unified government will be able to tackle the unprecedented national challenges in healthcare, economy, unemployment, and global disorder much better.

The Trump Presidency

True to his nature, Donald Trump was unable to give the leadership that the global financial markets have come to expect of the US Presidents. He could not evoke the sense of certainty about the policies of the USA and faith in the Dollar and the US economy.

His flip-flops on trade deals with Canada and Mexico, with whom the USA shares borders and China and EU, its largest trading partners, were devastating for businesses globally. None of the trading partners, including the UK, India or Japan were spared his irate and unsound policies.

The over-emphasis on America First was seen more a as protectionist tactic than a real effort at alleviating the local unemployment situation. Yet, the corporate tax-reliefs that his administration brought-in in 2018 were hailed by many corporate leaders as historic.

There have been many unintended positive effects of his policies, but they are more unintended than predicted and planned. For example, his relentless pursuit of China made the supply chains of many companies stronger. This helped keep the local production of many commodities & goods going on when imports from China were restricted amid the COVID-19 lockdowns.

Challenges for the Biden Presidency

It is still early days for the new administration under Biden-Harris to make any significant changes to the preceding administration’s conceived ills. Still, we can safely say that their economic policies will be much different, aligned to meet the unprecedented challenges, and will have a far positive global impact on financial markets, Gold & bullion, currency markets, and the Dollar.

Some of the challenges that the President Biden will have to face, both immediate and long-term, are:

The Senate Approvals

Although with the Georgia run-offs, the Senate is now equally divided among the Democrats and the republicans, but the tiebreaker of Vice President Harris has shifted the senate power-balance in favour of the Democrats. The House was already with them.

When Senate will meet to confirm cabinet nominees of President Biden, Republican leaders, especially Mitch McConnell, will not cede power so easily. They have already shown their willingness to fight by blocking confirmations of some of nominees to the Cabinet.

This powerplay from the outgoing Republican leader, Mitch McConnell, does not bode well when the economic packages and stimulus packages will be discussed in the senate and put to vote. Republicans still have the delaying tactic of filibuster up their sleeves.

COVID-19 and Rising Healthcare Expenses

The rising number of cases of the COVID-19 in the USA after the festival season have increased the worries of the public health officials. Despite having inoculated the largest number of its citizens, the USA was far behind its own target of 20 million vaccinations by December end.

In January, the 2-week trend of the COVID-19 cases has seen a 31.5% decline, and the deaths have seen a 2.55 decline, but in absolute terms, the death toll is still very high at close to 1915 deaths recorded on January 25, 2021.

As people get sick, they will be out of the productive cycle for at least 2 to 3-weeks affecting their purchasing power, economic survival, and collectively the effects on the US economy will continue to mount.

President Biden cannot enact laws for nationwide wearing of masks, but still he has signed executive orders to ensure wearing of masks on inter-state public transport, within federal buildings. He also signed the order to accelerate the local manufacturing and delivery of supplies for Coronavirus vaccination, testing, and PPE.

Biden ordered to FEMA to expand reimbursements for covering the costs for deployment of National Guard and emergency supplies to the states and to set up 100 federal mass-vaccination sites within a month. This will ease some pain from the stretched budgets of the US states.

China

Before July 2020 Biden was going soft on China, but since then many developments have ensured that he cannot go soft on China without risking his new-found popularity. His advisors have bluntly put the situation they face with respect to China:

• It is anti-democratic — how it has supressed Hong Kong protests.
• It is expansionist — far too many skirmishes with India and regular show of strength in the South China Sea.
• It is a threat to tech & economic supremacy of the USA; Chinese tech companies and wizards are stealing US data and tech, and China filed the most number of global patents in the fields of AI, Robotics, and other technologies surpassing the US. and
• It is perceived as a threat to national security by the US as Chinese are using their economic clout is to influence US allies and neighbours in recent years.

China is considered as a national concern by both parties, only the extent varies. Biden must deal with the economic sanctions his predecessor imposed on Chinese imports and negotiate a deal with it amid the growing suspicion.

He does not have the comfort to return to the China policy he helped erect during Obama years, as -too much has changed since — from IP theft to unfair trade practices, from rising defence budget to its almost colonial behaviour in the neighbourhood, from a completely brutal crackdown in Hong Kong to its uncalled-for territorial claims in India, from suppressed Uighur people with mass-surveillance to its ruthless mission for tech-superiority.

Debt and deficit

In twenty years, national debt to GDP ratio in the US has worsened from 55% in 2000, a budget surplus year, to 1365 of the GDP in 2020 (till Q2). The biggest jumps in the said period were seen in 2009, when the ratio jumped from 68% to 82% and then in 2020 when it jumped 30% from the 2019 level.

According to a World Bank Study, if a country has long periods where its debt-to-GDP ratio continues above the 77% level, its economic growth is adversely affected.

The budget deficit so far for 2020 has already crossed half-a trillion USD mark at $573 billion. In the fiscal 2021 starting on October 1, 2020, the Congressional Budget Office estimated the US ran a budget deficit of $284 billion in October and a deficit of $146 billion in November 2020. A deficit of $430 billion in just first two months!

The situation on the debt-to-GDP ratio and budget deficit are not likely to improve anytime in 2021 due to a prolonged regime of near-zero interest rates, enhanced need for government support, rising costs of healthcare & vaccinations, and economic uncertainty. If anything, the remotest semblance of fiscal prudence can be expected not earlier than 2022.

Climate change

Sustainability and climate change are high on President Biden’s agenda, it was proven once again when he signed the executive orders to re-join the Paris climate accord, cancelled the Keystone XL pipeline, and ordered a review of many of Trump’s policies on environment.

Climate change is no longer a scientific issue — it has political and economic ramifications. Political manoeuvring around climate change issues has resulted in a more agreeable bipartisan stand that trump presidency turned on its head.

Biden will need to find an equilibrium between the far-right’s call for “a market-based approach to reduce emissions” and Democratic liberals’ demands for “a Green New Deal” mandating government oversight and regulation. Both solutions will have completely different economic outcomes at micro and macro levels for regions, companies, sectors, industries, states, other countries, and even individuals.