Now that Joe Biden has been officially announced as the President elect, what can we expect? Following is a few random thoughts from an outsider.
Before I get to speculate about Biden’s presidency, I guess a short description my understanding of USA will help explain my views. I have visited the US multiple times (all visits were less than 6 months) from 2008 to 2015. I have a mixed impression about US from those visits. My first visit was to New York in 2008 and I absolutely loved the place. Bright and happening, busy and full of life. My second visit was to Cleveland and I revisited the same place in 2015. The impression I got was that of a sleepy little place with friendly people. The sense I got from the locals there (mainly cab drivers, restaurant and salon staff) was that this used to be a great place, but it’s no longer the same. One could sense certain vibe of frustration. I got a similar feeling from Pittsburgh, though to a much lesser extent. US politics is all over the media, even in India and it’s hard to ignore. From a distance, it looks like a country that believes in things like liberty and equality and also a deeply racist country. I also consume a lot of news about financial markets and that also informs a certain view about the US society and politics. Primarily it seems to be a society that has taken profit at all costs to its very extreme. There also seems to be a great deal of importance in appearing to be politically right (or “woke” as it is called these days).
I have tried to sum up my reading of the situation is different heads, so as to make some sense.
Caution: Chaos Ahead
There is a still a small matter of Trump conceding defeat. He has assured that legal action will be initiated from his side. There also seems to be a strong belief in some section of the population that Trump has been “cheated” by mail in votes. Some groups have actually threatened violence if Trump loses. There is also the fact that Democratic Party doesn’t have control of the Senate, so it is easy to foresee a period of utter chaos, where no decision making happens and there is a very real danger of violence. Given that Guns are as ubiquitous as cars in US, there is a big risk of random mass shooting that US is infamous for. The ongoing conflict between “woke” democrats and “conservative” democrats will widen. Any decision by the President will be labeled as “communist” and the polarization will get deeper.
Assuming that Biden and his team find a way through all this mess and actually execute some of their pre-poll plans, what are the possibilities?
The China Question?
One of the positives for India in the Trump administration has been his antagonistic stance against China. The trade wars, the effort to bring an anti-china alliance – The Quad, consisting of US, Japan, India and Australia, the complete support for Taiwan. All these are necessary and important steps to keep a very domineering China at bay. There are fears that Joe Biden’s administration will not be as combative against China. This stems from two reasons.
- Democratic party is seen as slightly more indulgent about China and the belief that they can be made to seen the error of their ways and will be made to stick to their end of the bargain ( hasn’t happened in 2 decades)
- The proposal is to expand the rail and road network in America and other infrastructure. Any infrastructure project has a dependency on China, simply because they are large and in a lot of cases the largest producers of all components that go into building infrastructure (steel, cement etc.). Given that there are plans to spend billions of dollars on infrastructure, Biden may avoid excessive tariff routes to solving disputes with trade partners and trade allies. This means a likelihood to go relatively softer on China and other trade partners of America, where there are frictions currently.
The Quad alliance is in its early stages and Sec. Pompeo has been driving it very successfully as an anti-china front (India, strangely, is coy to label it as anti-China). Any weakening of the Quad or the resolve to keep it going will be a big setback for India and a big plus for China. If they don’t have to deal with a combative US, China might just get more energy to engineer additional headaches for India. All this, of course, is speculation. May be the Quad will continue to grow in strength, fingers crossed.
This is one of the main election stories. Lot of people believe that Joe Biden will deal with far more effectively than Trump. He believes and will promote science when it comes to dealing with Covid is the general assumption. He has promised to unveil a COVID task force on Monday and follow a scientific approach to dealing with Covid. He has given assurance that no effort will be spared in fighting COVID.
While the promise seems earnest, the reality is that dealing with COVID after it has raged across the country is a bit like trying to save the Titanic using buckets to pour the water out of the ship. US hasn’t helped itself by politicizing something as simple as wearing masks (I mean how did they manage to turn such a non-issue into a political battle is beyond me). As much as he believes in science, will he be allowed to implement the guideline from his team of scientists?
He has promised to ensure that health care workers will receive free personal protection equipment. He has assured that American citizens will be able to avail of private healthcare policies if they’re not happy with the state health insurance and the outgo of the premium paid for this private personal health insurance shall not exceed 8.5% of their income. This is basically Obamacare+ – cue, accusations of being “communist”.
Immigration – will it become easier?
Joe Biden has stated that he will allow up to five times more immigrants into America as compared to the number of immigrants that were allowed in the calendar year 2018.He has also assured that undocumented illegal immigrants in America will be dealt with fairly leniently if they have been paying their taxes and their background checks are fine, even they may be allowed citizenship.
If he goes easier on immigration as he has promised, it is good news for Indian IT industry and hopefully they can breathe a little easier. Hopefully software companies will be able to send more people onsite with less hassle, fingers crossed.
Biden has plans to put in place a big recovery stimulus package and he plans to spend US$ 100 billion towards ‘Buy American’, which is basically the American version of “Atmanirbhar” and also US$ 300 billion towards research and development as to how goods and services can be actually made more cost effective in America. So, he is basically going beyond just good intentions and putting the money where needed or at least plans to.
He has plans to raise federal funding in education, hike the pay of teachers, have more health care workers in its public schools and raise the education standard levels in America.
Another proposal is the waiver of education loan with plans to waive student loans completely if it all the student is earning not more than US$ 125,000, out of which, US$ 10,000 will be waned immediately when Joe Biden is brought into power. I am always wary of loan waivers anywhere, the moral hazard and the precedent it sets to demand for more loan waivers is well known to anyone who follows Indian economy. Biden has also promised to create infrastructure, especially low cost housing for the affording and homeless US citizens (echoes of 2008?).
The overall idea is for a middle class friendly economic stimulus, which is very likely to attract a lot of comments about being “communist”. If we dial back to 2008, US government bailed out a lot of Wall Street fat cats, which was promptly channeled to share buy backs and executive bonuses, so this is definitely a different direction and one likely to see effects on the ground if implemented properly.
The Taxation Ideas
This is where Joe Biden is likely to face stiffest resistance. Given that the big shot corporates and wealthy individuals dominate US media and have an ability to amplify their voice, all proposals and attempts to increase taxes will be met with furious blow back.
Plan to raise corporate taxes and taxes on HNIs -Biden has plans of raising taxes on HNIs and corporates to basically raise revenues of the federal government. I can already imagine the kind of panic and breathless news coverage such a measure will result in. A few talking heads will appear on TV to say how this move will kill capitalism. To be fair to Biden, the attempt is to target high earning individuals and companies and not tax everyone across the board. With respect to investments, the tax raise is planned only on capital gains and dividends more than $1 million dollars
The other big taxation idea that is unlikely to get through is a proposal for death taxes or estate tax i.e. taxing unrealized gain on inheritance. E.g. Suppose I own an apartment which I purchased at INR 30 Lacs in my lifetime and I happen to die and at the time of my death, the apartment is valued at INR 50 Lacs. It is on paper or an unrealized capital gain of INR 20 Lacs. The proposal is to tax the INR 20 lacs when the asset passes over to the legal heir. This something people like Bill Gates and Warrant Buffet have recommended in the past. I can imagine everyone opposing this, so unlikely to go through is my guess.
Corporate Taxes – Proposal to raise corporate taxes from 21% to 28% which will cause some tremor in the stock market, but over a period of time, the concerns would settle. Eventually, all administrators are looking to increase tax revenues, somewhere or the other. Also to roll out a heavy duty financial stimulus, the money has to come from somewhere.
Dealing with Climate Change
USA is the largest consumer of fossil fuels, especially oil. Biden has plans to end subsidies for fossil fuels. US is not only a consumer of oil but also a producer. If the subsidies for oil go, very likely that crude oil and natural gas prices will go up. This is done in an attempt to discourage consumption of fossil fuel. Proposals are also in place to double offshore wind energy production by 2030, which again means that renewable energy will be emphasized upon and therefore fossil fuel consumption is likely to go down in Biden’s tenure. The implication of this is that oil and natural gas companies – exploration, oil marketing companies are going to have tough time and likely to see a slide in value.
Biden has committed to put in place reforms that would make America net zero emission by the year 2050. He is planning to spend on US$ 2 trillion over the next 10 years and create 10 million jobs by changing the way Americans consume energy and also leave a carbon footprint in the atmosphere. US$ 400 billion is the proposed expenditure for research and development on clean energy. There is also a promised outlay for encouraging electric vehicles and charging stations. So, companies in those areas are likely to benefit.
India – US Ties
India – US ties are at a stage where they are natural partners. I believe this is a mutually beneficial alliance and needs to continue irrespective of regime change. India cannot rely anymore on Russia, given that they have built military ties with China that are expected to grow. US has always been pro Pakistan, but there is hope that they are fed up enough of the unreliable partner to look at India as a regional partner. Also, the over reliance on China for imports is a big risk and hopefully India emerges as a strong alternative supplier. Flaws and all, India and USA are progressive democracies that have more in common than differences, so hopefully the partnership will endure.
In total, next 4 years will be very challenging for US and its partners and hope fully things will move in the right direction with the help of a far less noisy and far less entertaining president.