This outcome, notes the team, is negative for 2021 growth, but as the count continues is looking highly likely. “Fiscal stimulus is likely to be far more marginal and other key elements of the Biden agenda that could be implemented through executive orders or guidance on regulation are likely to be negative for near-term growth prospects.” Luzzetti adds in his Podzept podcast with Matthew Barnard on 28 October when he estimated around US$500m would be the upper end of the stimulus; “Less fiscal stimulus upfront for an economy that we think needs it given the Covid trends we are seeing.”
In the 22 October US economic perspectives report, Luzzetti et al note the limitations of a big fiscal package in the event of Republican control of the Senate. “We anticipate that Republican senators will remain resistant to a big fiscal package, likely even more so than in recent months when President Trump supported a larger package. Areas of agreement could be support for small businesses and middle class tax cuts, but key issues related to unemployment insurance, state and local government support, among others are unlikely to be areas of agreement in this scenario.”
Tax and infrastructure
Areas of agreement could, they add, be support for small businesses and middle class tax cuts. However, while there might also be support for large-scale infrastructure packages, there could also be, they note, “disagreements on how such a deal is funded (i.e., publicly funded versus public-private partnerships) and the insertion of a politically contentious issue like the environment into the calculus will once again dash hopes for a large infrastructure deal”.
Importantly, an obstructed Biden administration could, they add, be forced to instead focus on areas where members can use executive orders or guidance on supervision and regulation to achieve campaign promises in a number of areas. Key issues to consider, where Trump has pushed for reduced regulatory constraints in recent years, include health care, energy, finance, and the environment.
Although the “Blue Sweep” scenario (see below) noted “the first pillar of the Biden plan on international economic relationships is to work within coalitions, which would mark a sharp turn from the unilateral approach taken by the Trump administration over the past four years”, some progress in this direction is not out of the question with a Republican Senate. A more conciliatory approach to trade does look more likely with a Biden administration ratcheting down confrontations with other advanced economies that were targeted with tariffs on steel. But the degree to which he can get this done and “shelve threats of global auto tariffs” is reduced from what it would have been in an all-blue Senate. However, on 3 October, The Economist pointed out in its leader ‘Bidenomics” that while Biden “has a record as a free trader”, he is unlikely to remove tariffs quickly and “his plan indulges in petty protectionism by, say, insisting that goods are shipped on American vessels.”3
And while Deutsche Bank’s Luzzetti et al see a possible return to multilateral trade negotiations under Biden, they note that a US population sceptical about its benefits “may require a clearer focus on how trade deals benefit US households, particularly those that have suffered costs from globalisation and automatisation in recent decades”.
After a three-year delay, the US has become the first nation in the world to formally withdraw from the Paris climate agreement.4 Although President Trump announced his intention in June 2017, UN regulations for withdrawal meant that the decision only took effect on 4 November – the day after the US election. A new president could re-join it in the future.
Commenting on the Biden manifesto, The Economist observed (3 October), “Mr Biden’s climate policy represents real progress. Building green-power grids and charging networks makes sense because the private sector might hold it back.”5 However, with a Republican Senate, the Biden plan for a clean energy revolution will see the light of date remains to be seen.