High stakes for Ireland in how the US will vote
US elections have always been divisive but is even more so the case this time around.
A very unconventional US general election will come to an end when the polls close tomorrow evening.
The latest polls are pointing towards a win for Joe Biden and thus an end to a rather unconventional Presidency, both in terms of substance and style. With the memories of the last election still fresh, it is premature to call the winner just yet. What is clear however is that the winner of this election will have huge implications for the US and the world over the coming years.
US elections have always been divisive but is even more so the case this time around. The views of Republicans and Democrats have become increasingly polarised in recent years, with views around most issues being split down party lines. Strangely, this even applies to views around the management of the Covid-19 pandemic.
There are four key policy areas that will have a huge bearing on the US and global economies in the coming four years.
The first is on the environment, where the two candidates differ most on. Trump’s environmental credentials are well-known at this stage. He has dismissed much of the science of climate change and ridden roughshod over the international consensus on the need for global action. He has committed to follow through on his pledge to remove the US from the Paris Agreement as soon as possible after the election. In contrast, Biden has made tackling climate change a centrepiece of his campaign, promising a host of new green-led investments and a commitment to the Paris Agreement.
The second policy is around infrastructure. Both Trump and Biden are promising large spending packages, but Biden’s $2 trillion plan will have a bigger focus on the green agenda, with commitments on retro-fitting on clean energy. Trump’s plans meanwhile have a greater focus on the old reliables of roads and bridges and will have a smaller, but still large, outlay of $1 trillion.
Third, tax policies differ greatly. Biden has promised to partly reverse the corporate tax cuts that were introduced in Trump’s first term, as well as make it harder for US firms to shield or shift profits overseas. Tax rates for higher earners would also increase under Biden’s plans, while Trump intends to preserve the lower tax regime that was one of his greatest legacies to business over the past four years through an extension of provisions that are due to expire.
The final policy area that will have broad implications is trade.
Under Trump’s presidency, the US has become more protectionist, more aggressive in its trade policy and hostile to multilateral organisations such as the WTO. Trade wars have already occurred with China and there is a good chance of one with Europe if he was to get a second term.
Under a Biden Presidency, we should not expect there to be a sudden warming of US relations with China. Distrust of China has now become a bi-partisan position and it is politically popular to play hardball. However, Biden will be more willing to approach the issue of trade in a much less confrontational way and involve well-established international organisations to achieve US goals. Risks of future trade wars should reduce.
While Trump has pushed the boundaries of what a President can achieve over recent years with his employing of emergency legislation, but the degree to which these policies can be pursued will very much depend on the results of the election in the Senate where there is now a very real possibility of a shift of power from Republicans to Democrats.
If that did occur, policy implementation would become markedly easier. Financial markets have historically reacted badly to a clean sweep, but this time the picture is more cloudy due to the Covid pandemic and the fiscal response to it. We are clearly in a second wave of cases in the US, yet Democrats and Republicans have failed to come together as they did in the first wave with a substantial fiscal package. Markets may react to a clean sweep positively as this would then be implemented.
There is a lot at stake in tomorrow’s election and the world is watching on with bated breath. Ireland is a lot more than an interested observer in the result. The potential policy implications on trade and tax will be crucial to how the country gets over its Covid-induced recession.
Dermot O’Leary is chief economist at Goodbody
