After a long election ‘night’ we know right now that Joe Biden will become the next president of the United Stated of America. While both candidates are different in social policies, immigration policies, climate policies and healthcare policies, there are also interesting similarities and differences in their economic and political policies. This blog focuses on the economic and political effects of Biden as president, compared with Trump.
The similarity
Although Trump and Biden sound like the total opposites of each other, they a similarity in their view on the American politics: America first. They both are disappointed about the contribution of Europe on the global scene, especially on the field of investing in the European and national defense forces. Besides that they both see China as a huge treat and they both want legal procedures in order to limit this threat. Another similarity is the fact that they both want to invest in ending wars abroad, however Trump wants his investment back by decreasing the budget of immigration & refugee policy costs.
The Coronavirus
Trump talks about the V-shape corona recovery. This means that he wants to open up the country and create a whole new economic recovery as fast as possible. Trump underscores the importance of social distancing and hygiene and the responsibility of the people themselves. With Trump his V-shape recovery it is clear that unemployment rates will decrease and economy will recover fast due to the very limited restrictions left. However, what should have happened if the virus strikes back again?
Biden wants a K-shape corona recovery. This means that the statement of Biden is that you can’t fix the economical crisis if you do not fix the corona crisis. Biden shows a bigger governmental oriented policy of corona management. Furthermore Biden focusses more on isolation principles like investing in online schools, whereas Trump wants a corona proof society with in contrast save and corona proof offline school locations. Biden his statement is that the coronavirus is far from it’s end, whereas Trump states that the end is near due to the vaccines under development.
The difference is best explained in the contradictory “people want their places open” – Trump versus “People want their places save” – Biden.
The economy and tax policies
The Coronavirus gives a need for more investments than normally. Biden wants to invest in financial care for families and companies that are harmed by the coronavirus. Besides that Biden also has regular investment plants, like investing 3% of the American economy in infrastructure, health care, education, building houses and climate change. Economists state that it is expected that these investments will strenghten the long term economic recovery/growth. The other side of the coin is that this big investments will increase the debt of the country, putting pressure on the American dollar and potential inflation. Trump also had major investment plans, so in both cases the state debt is expected to increase to levels higher than after the Second World war. The difference is that following Bidens investment and financial plan, the increase of deficits is approximately 1.45 trillion dollars more than when Trump remained the president.
Furthermore Biden focusses on a more left wing tax policy. Biden wants to increase the corporate taxing from 21% to 28% and wants to add an additional 15% tax on the profits of companies. The citizens of America also have to pay more taxes, especially the citizens with high income (400.000 dollars a year). This will gain an estimated extra state income of 4.30 trillion dollars. In contrast, Trump doesn´t want any tax increases and it is estimated that his policies would have led to a tax decrease of 1.70 trillion dollars.
For the unemployment rates it seems that Biden is worse than Trump. Biden wants to increase the minimum hourly wage from 7.25 to 15 dollars. This is positive for the economic position of the working lower class, but will also increase the unemployment rate (or because of the high increase due to corona for a lesser recovery). Economists differ in opinion if the lower unemployment rate of Trump or the higher wages for the low-level employees is better for this class.
These investments and tax policy of Trump have a better outlook on the short term for the state dept and inflation problems, however economists are not clear about who has the best policies for the economic recovery. In general, they agree in the fact that Trumps opinions about the tax rules stimulate the companies and will decline the unemployment rate. However, it is also expected that the investments in education and climate of Biden will outperform Trump his short term economic preferences, in which Biden shows better expectations for the long term economic position of America.
Trump vs Biden for the Netherlands
The win of Biden is positive for the Dutch economy. It is expected that the increase import of products is around 4% in the first four years under Biden (and around 6-7% the next four years), whereas the expected import increase of Trump was between -1% and +1%. This is very positive for the Dutch ‘export’ economy. Rabobank expects a positive impulse of 3 billion for the Dutch market. In addition, economists also state that the more ´chill´ attitude of Biden against the EU is positive for the trading environment of the European companies. Furthermore they also think that the end of Trump his ´against EU financing (!)´ will give the companies and countries in the EU a calmer and less chaotic business climate.
(!) During his first four years Trump financed several countries and political parties in Europe like Poland, Hungary and in The Netherlands parties like PVV and FvD. The commonality of all the financings is 2the fact that all these countries and parties are skeptical about the European Union (!)
Trump vs Biden for China
During the period that Biden was a vice-president of Obama, he met Xi Jinping regularly as he was the vice-president of the Chinese Communist Party. On their mission, Obama and Biden wanted to include China in several worldwide organizations, like the WHO. Trump radically changed this approach as China did not open up to the world like Obama and Biden were hoping for. Since his appointment, Trump started with his ‘America First’ campaign. This lead to an anti-China campaign, resulting in a trade war between the U.S. and China. Biden started off his presidency with a similar hostile approach towards China as Trump did, such as naming the Xi Jinping a ‘thug’ for locking up Uyghurs in concentration camps in West-China. At the first sight, Biden does not hold a friendly position towards China. China on its turn, waited relatively long with congratulating Biden with winning the election.
The Biden administration however, is more likely to pressure China via alliances and further liberalization, which may cool down the trade war Trump started with sanctions and (import)tariffs. This means that Biden will tackle the China problem differently, with less confrontations than Trump did. Because of this, the Chinese stock markets responded quite positive to the news of Biden’s election win with an average growth of 0.5%.
After the ‘trade war’ in the four years of Trump, China’s trade surplus (export minus import) with the U.S. has only grown. Economists predict even more growth of this trade surplus under the Biden administration in the upcoming years, resulting in further rise of the Yuan. This year, China presented its five year plan with main focusing points ‘innovation’ and ‘greater economic self-reliance’. At the moment, China still relies more on the U.S. than vice versa. However, neither the Trump, nor the Biden administration will be successful in postponing this tipping point. Although China is reacting restrained towards Biden’s election, economic forecasts for China are relatively positive on the long term as Biden seems to be less aggressive towards China.
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