An interim assessment of the U.S. elections: Policy outcomes

 

The election outcome for U.S. president remains uncertain because of the large number of early and absentee votes in critical states that have not yet been counted and reported. This concern was widely known and anticipated before the election. We do not know when the election results will be final. 

 

Beyond the uncertainty and near-term social tensions surrounding the election, let’s speculate. It now looks likely that Republicans will maintain control of the Senate, so there will be spilt power in Congress.  If Trump is re-elected, the thrust of policies would be largely unchanged. If Biden wins, things change.  First and foremost, the President has extraordinary power on every dimension on domestic and international issues, and as we have noted, Presidents Obama and Trump significantly ramped up the power of the president, and we expect that the Biden Administration would not relinquish that power (U.S. 2020 presidential election: implications for policies and economic performance and The U.S. economic and political landscape). 

 

Second, the split power in Congress would create significant “checks and balances” on spending and tax issues and on the President’s general agenda.  Tax policies are proposed by the House Ways and Means Committee and must be approved by that Committee, the Senate Finance Committee, and both chambers of Congress. Both the Senate and House must approve budget appropriations legislation (defense and non-defense expenditures must be approved every year) as well as material changes to the entitlement programs (Social Security, Medicare, Medicaid, et al). This suggests that Biden’s expansive spending and tax proposals outlined in his campaign—the largest since the mid-1960s Great Society programs—would be thwarted by the Republican Senate.

 

Third, through Executive Orders, administrative laws and rulings, the President can implement policies on a wide array of domestic and international non-fiscal issues without Congressional approval.  Here, Biden would be able to achieve the largest portion of his expansive agenda to regulate labor markets, businesses, and activities in many economic sectors. He would also be able to change the thrust of international policies and diplomacy.

 

A possible path on domestic issues.  If he wins, Biden transition teams would develop policies on a number of issues—healthcare, economic and fiscal policy, China and international affairs, education policy, infrastructure, the green agenda and climate change, immigration, etc. While Biden’s official election campaign platform included detailed proposals on these issues, the transition teams would translate them into actual policy proposals.  Presumably, the realities of a split Congress would lead Biden’s economic transition team to trim back the tax and spending proposals and prioritize them. 

 

The Biden transition team, understanding that Senator Mitch McConnell has stated today that he would like to get a pandemic-relief package done by year-end, is expected to propose a new pandemic-relief package. This package would include funding for pandemic-related needs, an extension of enhanced unemployment compensation (but with a smaller weekly supplement), additional funding for supporting small businesses, and perhaps a moderate Federal grant to financially squeezed states. It would be a much smaller fiscal package than the legislation that passed the Democratic-controlled House during the summer and was rejected by the Trump Administration and Senate. Republicans will seriously consider an income support package of modest size in the current context of a solid economic recovery but high unemployment and small businesses still facing financial crisis.  Most likely, a modest package could be enacted by early 2021. 

 

Much of Biden’s proposals for increased spending and tax proposals would be significantly pared back. His New Green Deal, which proposed $2 trillion in spending over four years, would be off the table unless cut substantially and rationalized economically.  The Senate may consider a smaller (but still large) infrastructure spending initiative partially financed by a well-designed carbon tax. Similarly, Biden’s proposals to raise taxes dramatically are now unrealistic politically.

 

Obviously, the spilt in power in Congress stemming from the Republicans’ likely maintaining control of the Senate comes as a great relief to financial markets and those who feared the negative impacts of such dramatic shifts in fiscal policy and other policies (Stocks, bonds and the US dollar: patterns around prior elections, November 3, 2020).

 

On the regulatory front, Biden is expected to announce significant changes in immigration policy that ease various visa requirements and quotas. The Biden Administration eventually would promote more extensive immigration reform that would provide a roadmap for citizenship of approximately 11 million undocumented people, but that would require Congressional legislation.

 

While Biden’s campaign proposal to enhance the ACA (Affordable Care Act, or Obama Care) would be constrained by budget negotiations, changes in select eligibility requirements may be imposed through Executive Orders and administrative interpretations.

 

International Issues and Diplomacy.  The Biden Administration would shift the U.S.’s approach to international affairs toward a much more conventional path, following Trump’s decidedly unconventional policies. Biden is expected to move quickly to extend a friendly olive leaf to leaders in Canada, Europe, the UK, Japan and others, emphasizing a new era of diplomacy and the reliability of the U.S. as an ally. He would also state that the U.S. would re-engage in international organizations that Trump had eschewed, including NATO, the WTO, and WHO.  Biden would maintain pressures on China to end unfair trade and diplomatic practices, exerting pressures by forming an international coalition of nations and working through established diplomatic channels.  Although he would be unlikely to reduce tariffs on imports from China, he would not raise tariffs or use tariffs as a policy lever.  Although Biden, like Trump, emphasizes the goal of bringing manufacturing jobs back to the U.S., his Administration would not be explicitly negative on international trade and bilateral trade deficits.

 

Mickey Levy, mickey.levy@berenberg-us.com

 

 



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