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HOME NRI JOURNAL Takahide Kiuchi's View - Insight into World Economic Trends : Would a Biden Administration Mean Major Changes to the Business Environment for US Companies?

NRI JOURNAL

Innovation magazine that generates hints for the future

クラウドの潮流――進化するクラウド・サービスと変化する企業の意識

Takahide Kiuchi's View - Insight into World Economic Trends : Would a Biden Administration Mean Major Changes to the Business Environment for US Companies?

Takahide Kiuchi, Executive Economist, Financial Technology Solution Division

#Market Analysis

#Takahide Kiuchi

Aug. 18, 2020

The November 3 US Presidential Election is nearly upon us. Former Vice President Joe Biden, who secured his place as the Democratic candidate running against incumbent Donald Trump, continues to enjoy a lead in the polls. Yet even supposing that a Democratic administration (which is more inclined to adopt policies that favor workers) comes into office, such an administration would be unlikely to pass economic policies that lean hard to the left, and so there would seem to be little chance of the US business environment taking a significant turn for the worse.

Biden names his VP pick

Biden announced on August 11 that he was picking Senator Kamala Harris to be his vice-presidential running mate. Senator Harris is a second-generation American and the daughter of Indian and Jamaican immigrants. Amid the Democratic National Convention held over a four-day period starting on August 17, Biden and Harris were officially nominated as candidates for the Democratic presidential ticket, and the election campaign is set to enter full swing before long.
Although Biden had made it clear previously that he was thinking of nominating a female candidate for his vice president, by choosing a black woman, he arguably clarified his intention to put racial discrimination issues front and center in his campaign strategy, as opposed to President Trump, who has been criticized for his response to protests against the discrimination of black Americans. Harris also has a record of strongly arguing for the humane treatment of illegal immigrants.
Still, given that a Democratic administration is more likely to broadly implement anti-corporate and anti-elite policies, US business tends to disfavor having Democrats in the White House. However, even if a Biden administration were to come about, at the moment I believe it would be unlikely for that administration to adopt hard-left economic policies that have the US corporate world worried, and for major changes to happen to the business environment. I give the main three reasons for this below.

A Biden administration would be left-of-center

The first is that Biden is not a strongly left-leaning member within the Democratic party, and he has proposed centrist economic policies.
Biden announced in July that he would pledge two trillion dollars measures to combat climate change and in infrastructure investments over the course of four years. He has proposed achieving net-zero greenhouse gas emissions for the energy sector by 2035, as well as revamping the nation’s transportation network and other infrastructure and promoting the widespread use of electric vehicles.
Biden has emphasized that his measures against climate change would enhance the US’ competitive power internationally. His platform is a rebuttal to President Trump, who has accused climate change measures place a huge burden on US companies and make US businesses non-competitive. In turn, Biden has stressed that while he will pursue climate change policies, they are not anti-business, and would bring positive effects for companies, employment, and the economy.
Meanwhile, Biden certainly has also proposed some left-leaning economic policies from the traditional Democratic platform, such as raising the wealth tax and the corporate tax rate and expanding public health insurance. Yet even these policies do not have a particularly strong left-wing flavor. While Biden has indicated his intention to raise the corporate tax rate to 28%, this level would be right in the middle between the 35% rate under President Obama and the current 21% under President Trump, undoing half of the rate cut instituted by the Trump administration. This would make it a comparatively moderate policy.
Another factor that even further lowers the chances that a Biden administration will swing hard left in its economic policies is his choice of Harris as his candidate for vice president. One of those who were thought to be in the running as candidates for the VP role was Elizabeth Warren, a female Senator who has espoused far-left economic policies. Supposing that Biden had instead named Warren as his vice-presidential candidate for the purpose of courting the left-leaning members of the Democratic party, if he were then to win the presidential election, the economic policies of his administration would be more likely to take on a more distinctly left-wing nature.
On the other hand, although Harris is known for her persuasiveness in speaking about human rights and immigration issues, for instance, she is less influential when it comes to discussions about economic policy. She would therefore appear more likely to support Biden’s left-of-center economic policies.

Will a change in administration see the US return to a more international cooperative approach?

The second reason is that Biden is inclined to amend the Trump administration’s “America First” policy, reverting to a certain extent to a more international cooperative approach.
As for trade policies, Biden has strongly condemned the Trump administration’s levying of additional tariffs, while also indicating his desire to rejoin the TPP (Trans-Pacific Partnership). While Republican administrations have historically been highly inclined toward vigorously supporting free trade, the Trump administration has shown strong protectionist tendencies, but the arrival of a democratic administration under Biden could possibly, and ironically, put the US on a course returning back toward a free trade policy.
Even in terms of the climate change policies mentioned earlier, Biden has stated that he would bring the US back to the Paris Agreement—the international framework for combatting climate change from which the Trump administration decided to pull the US—and to lead the world on environmental issues.
If a Biden administration were to mean a correction of the “America First” policy and a return to international cooperation, it would also mean stronger relations with Japan, the European nations, and other countries, and be favorable to the activities of global US companies.
The third reason is the impact of the Covid-19 pandemic. Even if a Biden administration were to come to pass, for the time being its economic policies would likely get bogged down in handling pandemic countermeasures. In addition, the Trump administration has already invested huge sums of government funds into Covid-19 measures, and fiscal conditions are rapidly worsening. As a result, traditional Democratic economic policies such as raising the wealth tax and corporate tax rate (which would negatively affect economic conditions) and expanding public health insurance (which would further harm the financial environment) might end up effectively being restrained for the moment.

The US stock market, which has a strong tendency to be wary of Democratic administrations for their propensity toward adopting anti-business, anti-elite policies, now appears to be quietly watching as Biden is favored in the presidential election, likely because of the circumstances I described earlier. Even if there is a change in administration, there would seem to be little chance that the US business environment or stock market environment will deteriorate overnight.
That said, there are still many uncertainties about what a Biden administration will look like, including what sorts of persons will be placed in key cabinet positions, and we’d do well to bear that in mind.

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