US Election 2020: Economic Implications for the Future

5th October 2020

With the US presidential election on the horizon, we examine the economic implications of a potential Biden or Trump victory. What will each candidate's policies mean for global markets?

As the 2020 US presidential election draws near, the world is bracing itself for a political outcome with profound economic consequences. The candidates, incumbent President Donald Trump and former Vice President Joe Biden, have both presented starkly different visions for the future of the United States and, by extension, the global economy. Their policies will shape not just the US economy but the entire world’s financial landscape, with markets already showing signs of volatility in anticipation of the election results.

For investors, business owners, and policymakers alike, the question is not simply who will win, but what economic path they will take. Will President Trump’s pro-business, deregulation-focused policies continue, or will Vice President Biden’s more interventionist and progressive approach gain the upper hand? In this article, we will explore the economic implications of a potential Trump or Biden victory, weighing the potential outcomes for trade, taxation, climate policy, and the broader economic climate.

The Trump Economic Legacy: A Focus on Deregulation and Corporate Tax Cuts

To understand the stakes of the 2020 election, it is necessary to first examine the economic policies that President Trump has championed during his tenure. Since taking office in 2017, Trump has placed a heavy emphasis on tax cuts, deregulation, and an "America First" approach to trade. These policies have had a profound impact on the US economy, though their effects are still the subject of debate.

One of Trump’s most notable achievements in office was the passage of the Tax Cuts and Jobs Act in 2017, which slashed corporate tax rates and reduced individual tax rates across the board. Proponents of the tax cuts argue that these measures have spurred economic growth, provided businesses with more capital to invest, and created jobs. Critics, on the other hand, contend that the tax cuts primarily benefited the wealthiest Americans and corporations, exacerbating income inequality and contributing to a ballooning federal deficit.

The Trump administration has also pursued a policy of deregulation, particularly in the energy sector. By rolling back environmental regulations, Trump has sought to foster an environment conducive to fossil fuel production, thereby creating jobs and reducing energy costs. However, this approach has been controversial, with critics arguing that it prioritises short-term economic growth over long-term sustainability and environmental protection.

On the trade front, President Trump’s protectionist stance has been evident in his trade war with China, which began in 2018. Through tariffs and sanctions, Trump has sought to address what he perceives as unfair trade practices by China, including intellectual property theft and trade imbalances. While some argue that the trade war has achieved its objectives by pressuring China to make concessions, others contend that it has harmed both US and global businesses by disrupting supply chains and increasing costs.

Should Trump win re-election, we can expect these policies to continue, with further tax cuts, deregulation, and an emphasis on reducing the US trade deficit. However, there are questions about the sustainability of these policies in the long term. The pandemic-induced economic downturn has exacerbated the federal deficit, and it remains to be seen how Trump will manage this growing debt. Additionally, while deregulation and tax cuts have been popular with businesses, they have been criticised for widening income inequality and leaving certain sectors, particularly healthcare and education, underfunded.

Biden’s Economic Agenda: Tax Increases and a Progressive Approach

In contrast, Joe Biden has put forward a significantly different economic agenda, one that leans more heavily on government intervention, progressive taxation, and addressing systemic inequality. Biden’s economic platform has been framed around rebuilding the middle class and ensuring that the benefits of economic growth are more widely distributed.

A key component of Biden’s economic plan is his proposed tax increases on corporations and high-income earners. Under Biden’s plan, corporate tax rates would rise from 21% to 28%, and individuals earning over $400,000 would face higher income taxes. These tax increases are designed to fund Biden’s ambitious infrastructure and social spending plans, which include investments in green energy, healthcare, education, and other key sectors. Biden argues that these investments will create millions of jobs and help the US transition to a more sustainable and inclusive economy.

Biden has also pledged to strengthen the Affordable Care Act (ACA) and expand access to healthcare, particularly in response to the health and economic challenges posed by the COVID-19 pandemic. By providing universal access to healthcare, Biden believes that the US can reduce long-term healthcare costs while improving the overall health and productivity of the workforce. This approach would contrast sharply with Trump’s attempts to repeal the ACA and reduce government involvement in healthcare.

On climate change, Biden’s policies stand in stark contrast to Trump’s deregulation efforts. Biden has outlined a comprehensive plan to address climate change, including a $2 trillion investment in clean energy and efforts to reduce carbon emissions. Biden’s climate agenda is ambitious and aims to position the US as a global leader in the fight against climate change. This policy is likely to resonate with younger, more environmentally-conscious voters and businesses looking to transition to greener technologies.

If Biden were to win, we could expect a sharp shift in US economic policy, with a focus on taxation, infrastructure, healthcare, and climate change. The proposed tax increases and spending initiatives could have a significant impact on the US economy, potentially leading to higher inflation in the short term. However, Biden’s supporters argue that these investments will pay dividends in the long term by fostering economic growth, reducing inequality, and addressing the pressing issue of climate change.

Implications for Global Markets: A Tale of Two Economies

The potential economic policies of both Trump and Biden are likely to have far-reaching consequences for global markets. Under a second term of President Trump, we can expect a continuation of his "America First" trade policies, which could lead to increased protectionism and trade tensions with countries like China and the European Union. Trump’s stance on tariffs and trade agreements has already created uncertainty in global markets, and a second term could exacerbate these concerns, particularly if the trade war with China escalates.

In contrast, a Biden victory would likely see a shift towards greater international cooperation and multilateralism, particularly in areas such as climate change and trade. Biden has expressed a desire to rejoin the Paris Climate Agreement and work with global allies to combat climate change. This could have significant implications for global markets, particularly in the renewable energy sector, as countries around the world work together to reduce emissions and invest in green technologies.

Biden’s proposed tax increases could also have global implications, particularly for multinational corporations. A higher corporate tax rate in the US could prompt companies to reconsider their operations in the country, potentially shifting investment to other jurisdictions with lower tax rates. However, Biden’s focus on increasing domestic investment in infrastructure and clean energy could create new opportunities for global businesses, particularly those in the green technology sector.

One of the key considerations for global markets will be how each candidate handles the economic fallout from the COVID-19 pandemic. The US has been one of the hardest-hit countries in the world, with millions of jobs lost and businesses shuttered. How each candidate plans to address the pandemic’s economic impact will play a crucial role in shaping the global economic recovery. Trump’s focus on reopening the economy and reducing government intervention may clash with Biden’s approach of using government stimulus to support workers and businesses during the pandemic.

In many ways, the US election can be seen as a reflection of the broader ideological divide between free-market capitalism and government intervention. Trump’s policies are rooted in the belief that the economy functions best when left to the forces of the market, while Biden’s policies reflect a more Keynesian approach, with government playing a central role in guiding economic recovery and addressing inequality.

As we approach the 2020 election, it is clear that the stakes for both the US and the global economy are incredibly high. Both candidates offer distinct visions for the future, and the outcome of this election will have far-reaching implications for the direction of economic policy in the years to come. Whether the US embraces further deregulation and tax cuts under Trump or moves towards progressive taxation and government intervention under Biden, the election results will undoubtedly shape the global economic landscape for years to come.