Impact of the US Presidential elections 2020 on the Global Economy — II
Like it or not, when the USA sneezes, the world catches cold! In this second part of the 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 the part one here, or jump to part three.
Donal Trump vs. Joe Biden
Instead of the usual face-off here we list the major shifts from Trump administration that Biden administration has undertaken or is likely to do in coming days. These are based on public speeches and campaign promise of the candidates, and the actual steps they took, when they were in power or got it.
Vaccination strategy
Trump wanted to roll-out the vaccination before the November election day, which was not very well taken by the scientific and healthcare community. The vaccination program must not have been made a campaign promise.
The Biden administration has the biggest challenge of procuring and distributing the Pfizer and Moderna vaccines across the breadth of the country in the earliest possible time. They will also have to counter the anti-vaccination drive by the far right and convince people to get vaccinated en masse.
Trade policy
The Trump administration brought some of the most dramatic changes in US Trade policy in dealing with their trade partners, close allies, and trade rivals. The trade relations with their largest partners EU, Canada, and Mexico worsened. The economic and tariff sanctions on China created supply chain bottlenecks. It also alienated its trusted partners like the UK and Japan on many counts.
The Biden administration is supposed to be more conciliatory than the earlier one and will insist that everyone follows and adheres to the bilateral, multi-lateral and WTO agreements. They will take measure to improve & progress trade relations with long-time friendly countries, except for China. The trade with China trade war may not have an immediate and effective solution even under the new president.
Prescription drug prices
Rising costs of healthcare, including prices for prescription drugs have become a pivot for many low and middle-income families. The added cover of Obamacare (Medicaid and Medicare) is also not sufficient to cover the costs of ER visits, procedures like dialysis or chemotherapy, and regular medications like insulin.
Biden administration is not going to give a free rein to pharmaceutical companies to loot the society and continue with their super profits like the Trump administration did. In the last year of his presidency, Donald trump seriously took interest in this area, but it was too late and too little by then.
The Biden administration can build on the crumbling Affordable Care Act and learn from its mistakes to expand coverage of affordable health insurance sponsored by the federal government.
Climate Change and fuel efficiency standards
Unlike the earlier administration, the new administration does not believe that Climate change is a hoax and considers it a present threat to the global and US interests.
Among the first executive orders of the Biden administration were the ones to re-join the Paris Climate Accord and to revisit fuel efficiency standards, rules governing airplane emissions, and appliance & building energy efficiency standards.
Infrastructure
Infrastructure is one issue with bipartisan support, but here to the quantum and the manner of spending has been a cause for disagreement and discord between the outgoing and the new POTUS. The Donald Trump administration wanted to involve more private sector funding in development of infrastructure with exclusive rights to charge for its use from public.
The Joe Biden Administration can take on the PPP route to complete new infrastructure projects. According to his campaign website, President Biden would launch a “a national effort aimed at creating the jobs we need to build a modern, sustainable infrastructure now and deliver an equitable clean energy future.”
He has laid the emphasis on use of clean tech and clean energy to generate millions of jobs in construction, skilled trades, and engineering sectors. These sectors, he said, would energize the America and “create pathways for young people and for older workers shifting to new professions.”
Impact of 2020 US Elections on Financial Markets, Dollar, Gold, and Global Economy
Whether you like America and Americans or not — the US elections have always been the most watched elections across the world, because of the place the USA commands in the world orders. The 2020 US Elections were going to be decisive as it was a choice between a divided vs. a unified government. Whatever the form it would have taken, its potential impact would have been felt on the policies, strategies, economies, and financial markets.
With Joe Biden becoming the President on January 20, and the Democrats wresting the control of both the houses of the Congress, the verdict is in favour of rationality, unity, and scientific temper.
While 2020 was a year with wildest swings ever seen the prices of stocks and bonds, in the end the stock markets performed the best among all the major asset classes.
The Fed supports the markets
The Fed is playing an instrumental role in keeping the economy on track, while the world treads through these uncertain times. Its 0-interest rate policy, or the easy money stance, has given a shot-in-the-arm to the financial markets. Fed’s actions of buying bonds from Treasury, Municipalities and Corporates will help check any significant downside in the financial markets.
The yields have come down to a historic low, due to Fed’s near-zero interest rate policy, to less than 1% on even the 10-year Treasury note. With more money chasing the same number treasury bonds, it found its way into corporate and municipal bonds.
In November 2020, Jim Rogers (ex-co-founder of the Quantum Fund with George Soros), Chairman at Roger Holdings and Beeland Interests, predicts that the level of the debt taken on by the US government, corporates, & households has come to a tipping point and there is no return and no escaping it.
US Election impact on Dollar
According to Jim Rogers, the Dollar has gained strength recently as it has gained the reputation of a safe haven or asset class of last resort during emergencies. The price of the Dollar will depend on many more factors, like the crude prices, international currency prices, and geo-political reasons.
The US Economy
The COVID-19 pandemic and associated economic crisis has shook every economy in the world, including that of the US. The government had to assume a primary role in many sectors from where it was absent for many years — healthcare, infrastructure, housing, and personal debt. The quantum of the COVID-19 relief package over long-term will decide if the policy was a success.
Inflation
Jim Rogers predicts that without the government aid the demand would collapse for many things, including food, clothing, housing, and commodities like steel, oil, and copper. The inflation is muted not because there are too many things chasing too few dollars, but it is the collapse of the demand that has caused a downward trend in inflation numbers. This, history has shown us, always leads to unbearable inflation.
Stimulus Debate
The new monetary stimulus measures brought in by the US Fed averted liquidity crisis arising during the COVID-19 crisis. Republicans have always believed in the trickling effect and of the economic theory and therefore have suggested more aid for businesses and thereby investments.
However, Democrats have advocated more directed and individual aid, like increase in unemployment benefits, ensuring families have two-square meals on the table and a roof over their heads, and to boost the consumer spending.
The Democrats pushed for a larger stimulus package after the 3 packages already helped economy somehow, while the Republicans advocated a much smaller stimulus.
Student Debt
Student debt in the USA has reached humongous proportions of $1.54 trillion with 45 million users active on their debt accounts. The debt overhang has caused a major disruption in the housing market, which has driven the US economy for the past 40 years. Increasing average student debt is one of the reasons why millennials do not own a home.
President Biden, in a Q&A with the members of the Press, mentioned about a Democrat-sponsored legislation in the House to immediately wipe $10,000 in student debt, all as part of the COVID-19 relief package.
Housing
As millions of people could not pay their rent as they lost their livelihood in the pandemic, and the eviction moratorium imposed by the CARES Act coming to an end, evictions started in large numbers starting August.
Emily Benfer, Chair of the Task Force Committee on Eviction, American Bar Association, estimated that by September alone, more than 28 million people could face eviction across the USA. This caused a great number of people coming in close contact with each other, living on the streets, besides creating other type of problems. The Centers for Disease Control and Prevention or the CDC had to use its authority to issue an eviction moratorium up to Dec. 31, 2020, to prevent crowding and spread of COVID-19.
Biden also proposed, during his campaign, the tax-credit to first time homebuyers and funding of the Section 8 voucher program.
Corporate & Personal Taxes
One of the most significant pieces of legislation by the Trump administration was the 2017 Tax Cuts and Jobs Act (TCJA) where permanent large tax cuts could corporations. It also had some temporary individual tax cuts, expiring in 2025, that again helped more wealthy individuals.
There were some tax-cuts across the board to placate the majority and the premise was that the companies will invest in creating more jobs if they will have more to invest. But most corporates used the extra cash to repurchase their shares, pay handsome dividends, and cut their debt, rather than investing in new projects or sharing the benefits with workers via wage increases.
The share of the corporate taxes in the total federal tax revenue came to its lowest, just above 5% levels, last seen in mid-1980s.
Biden, in his campaign promise, proposed a tax plan raising taxes for wealthy Americans, tax long-term capital gains at par with normal income, and providing relief to the bottom-of-pyramid — complete 180-degree opposite from the Trump’s TCJA. going in the complete opposite direction from Trump’s tax plan. Biden’s tax plan, over the next decade, would raise the tax revenue by $3.3 trillion.