The US election has just entered into its early last phase. The race is no longer between the incumbent and the challenger but between President Trump and Vice President Mike Pence versus former Vice President Joe Biden and his Vice President nominee, California Senator Kamala Harris.
Up to now, the incumbent and the challenger have argued about how to re-establish lacking middle-class growth and how to improve the country’s trade conditions with its external partners. Now, as it appears, the candidates are focused on how the country will navigate out of the economic downturn while markets have lost connection with reality, thereby leaving the majority of US citizens behind.
The US economy has passed through one of the steepest, but shortest, recessions in history. Yet the outcome is that unemployment is staying stubbornly high. The initially expected U-shaped recovery is now more likely going to be a W-shaped double-dip recession. In other words, consumer sentiment is not fully back although the government and the central bank have come along with fiscal and monetary stimulus measures to jumpstart the economy. We expect that COVID-19 related issues and consequences are very likely to mastermind the election campaign between now and November. Therefore, typical issues the teams will try to address or shed light on are supporting unemployment, helping SME out of the dump, health care, trade, stock market valuation, and taxes. Let’s look at some of these topics in more detail.
Trade
The US-China trade war has dominated headlines and international trade ever since President Trump took office. In his first two years as president, the Trump Administration pulled out of several trade deals, introduced a new trade deal with Canada and Mexico, and levied hundreds of billions of dollars in tariffs on Chinese companies. Thereby the Trump Administration has highlighted the world’s awareness and dependence on the Chinese boiler room.
Lately, the escalation has gone one step further. The Administration banned the sale of electronics components to Chinese telecom firm Huawei, threatened to delist Chinese companies from US stock exchanges, and demanded that Chinese firm Bytedance, owner of the app TikTok, sell its US operations. In plain English this looks like an expropriation and an anti-competition measure to truly protect the nation’s interests.
Biden’s proposed trade plan focuses on long haul measures, e.g., improving US competitiveness by investing in infrastructure and R&D across the economy, confronting China in cooperation with allies rather than acting unilaterally on trade, and tightening rules against corporate inversions to discourage companies from moving overseas. Yet, much of that is more of a “déjà vu” and hasn’t really worked in the past.
Health care
The US healthcare system is probably one of the most selective ones across the globe. While having one of the costliest systems, key ratios such as life expectation (decreasing) and infant mortality (increasing) are moving in an opposite direction when compared with international trends.
The candidates’ propositions diverge literally from each other: President Trump and congressional Republicans proposed the American Health Care Act (AHCA) back in 2017. While it failed to pass, an amended proposition could come back and this gives an idea of what the party’s ideal solution for health care is. While on the other hand, Joe Biden is looking to expand on the Affordable Care Act (ACA), passed when he was vice president. The second proposition is most likely to increase the healthcare burden even more.
Investing
As the stock market is back to record highs while the US economy is still deep in recession, the gap between the stock market and the rest of the economy is as wide, or wider, than ever. As only about half of Americans own stocks, that gap also increases wealth and income inequality, also at record levels. Numerous policies could affect investing going forward, from how candidates change capital gains taxes to who is nominated to run the SEC.
Taxes
One of the largest, if not the largest, pieces of legislation passed under President Trump’s presidency was the 2017 Tax Cuts and Jobs Act. The legislation consisted of a large, permanent tax cut for corporations and temporary cuts to individual taxes that will expire in 2025. These cut individual taxes largely for higher-income Americans but introduced at least some level of tax cuts across the board. Big winners of the tax cuts were investors, as most of the corporate money repatriated under the law went to share repurchases and dividends rather than wage increases or investment, mirroring the effects of the repatriation holiday in 2004. Joe Biden has proposed a tax plan that would raise taxes for wealthy Americans and tax long-term capital gains at the same rate as normal income, going in the complete opposite direction of Trump’s tax plan.
Therefore, the overall direction of tax policy in America could be at play in this election.
Tech
The technology sector represents the east-west population differential perfectly. In the east, technology is seen as a tool to enact control, maintain effective competition, and re-establish independency from other nations. In the west, technology is seen as an opportunity to be shared and make life easier, irrelevant of any counterpart. While there is a fundamental difference in approach, this did not prevent five tech companies (Apple, Amazon, Facebook, Microsoft, and Alphabet) from representing more than 20% of the S&P 500 market cap. Obviously there is a disconnect, and the outsized position of these companies may impact the presidential race.
President Trump has long railed against large tech companies for what he perceives as a bias against conservatives. These allegations have already had an effect as it was recently revealed that Facebook stopped enforcing its anti-fake-news policies versus conservative outlets.
On the other hand, many Democratic Party politicians have attacked these companies for their untruthful handling of user’s data and their use of corporate inversions to avoid paying taxes.
In a rare example of bipartisanship, politicians from both sides of the aisle have accused many of these companies of being monopolies and have proposed they be broken up like the Standard Oil Trust of old. If this were to become a reality, the monopolistic position of the US technology sector would probably take a hit and job and wealth creation across the country would probably peak very soon.