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Green left turn with Biden, or four more years of Trump?

Green investments, tax hikes for high income earners and companies as well as less trade-related drama are among the policy changes that can be expected if Joe Biden – who leads in the opinion polls – takes over the US presidency. This time around, there is uncertainty not only about the candidates but also the election process itself. Assuming a high percentage of postal votes, it might take weeks before the election is decided. The final winner may not be the candidate who leads the race on election night. This creates a risk of financial market volatility and increased political tensions.

COVID-19 and the economic crisis have changed the circumstances surrounding the US presidential election on November 3. It is highly probable that Democratic candidate Joe Biden will win, but the outcome might remain uncertain for some time. The coronavirus situation, the pace of economic recovery and the outlook for a vaccine are three factors that may determine who wins. The economy is viewed as the most important factor among voters. This is the area where President Donald Trump enjoys the highest confidence.

But the most important issue for Biden supporters is the coronavirus. The polarised election landscape increases the risk of conflicts in case of a close outcome, which may threaten the legitimacy of the election among the losing side. This is especially true since postal voting is expected to be record-high. It may thus take weeks before the final outcome is known.

Joe Biden was Barack Obama’s vice president and belongs to the mainstream of the Democratic Party. But both the US and the Democrats have been influenced by four years of Donald Trump. Biden will need to follow his party towards the left and adapt to a changed approach to the climate issue and globalisation. Just like the Republicans after Obama, bitter Democratic core voters – after the past four years of setbacks – want to see a radical shift in policies and a president who, like Trump, is not afraid to test boundaries. Since the winner of the primaries emerged, a task force with representatives of the Biden and Sanders campaigns have developed joint policy proposals. In addition to Biden’s earlier campaign promises, these proposals provided input for the election platform approved by the virtual Democratic convention in mid-August.

Bidenomics: from Wall Street to Green Street

Green industrial policies, tax increases for high income earners and companies, support for union rights, an expanded social safety net and stopping the outsourcing of American industrial jobs are among the main points in Biden’s economic policy. Some of the factors that have benefited the stock market under Trump – corporate tax cuts and deregulation – would be reversed under Biden. “Green” sectors such as renewable energy would enjoy higher priority, at the expense of “brown” sectors like oil. As for stimulus measures, we foresee fewer differences compared to the Trump era. Because of the need to continue stimulating the economy after the pandemic, federal fiscal policy will remain expansionary in 2021.

Biden’s message – buy green and do it in the US

Biden’s own version of Congress’s “Green New Deal” combines market solutions with green industrial policies and quantifiable emission targets. Over a four-year period, Biden promises to invest USD 2 trillion in green infrastructure and green jobs, with a special focus on communities more exposed to pollution and climate change. US electricity production should be free of carbon dioxide emissions by 2035, and greenhouse gas emissions eliminated by 2050. Climate, environmental and health regulations from the Obama era that were scrapped by Trump would be restored, and the US would stay in the Paris Agreement on climate change.

Tax hikes for high income earners and companies

During his primary campaign, Biden promised to reverse Trump’s tax cuts for high income earners and boost payroll taxes on high incomes. Individuals who earn more than USD 1 million should also pay the same tax on capital gains as on work income. The corporate income tax would be raised to 28 per cent. The tax on foreign subsidiaries would be doubled. Biden would also like to introduce a minimum tax of 15 per cent to force highly profitable companies like Amazon to pay taxes.

No return to Obama’s trade policy

Trump’s first term of office was characterised by an aggressive foreign trade policy, in sharp contrast to the pro-free trade philosophy of the Obama administration and Biden himself. But the picture of Democratic trade policy is more divided today. One of the slogans in the campaign is “Buy American”. Rhetoric towards China has been stepped up. Biden is critical of Trump’s unilateral tariffs, which in his view have harmed American industrial workers and farmers. Instead, the US should act jointly with allies and partners to isolate China in terms of trade policy.

Minimum wage, but no universal health insurance

Biden will not follow up on the demands of the Sanders wing regarding Medicare for All. One of the reasons is that many Americans apparently do not want to let go of their private health insurance. Instead, Obama’s health care reform will be supplemented with a “public option”. Another proposal that may have a major impact on the business community is Biden’s promise to more than double the federal minimum wage from USD 7.25 to USD 15 per hour. In practice, the increase will be less in many places, since 30 out of 50 states have already boosted the minimum wage: from about USD 8.50 in Florida to USD 13.50 in Washington state.

Can Biden enact his agenda?

In 2018 the Democrats regained control of the House of Representatives, and they appear to have a good chance of retaining control after 2020, even if Trump is re-elected. Control of the Senate will be crucial. A divided Congress would make it very hard for Biden to enact his policies. It is common for presidents to begin their terms with their own party in control of both houses, but then lose ground in the midterm election two years later.

Postal voting a new challenge

A polarised population, coronavirus concerns and an increased number of postal votes may turn the 2020 election into a cliff-hanger. In the 2016 election, 21 per cent voted by mail; ahead of the 2020 election, figures of up to 70 per cent have been mentioned. Because many states lack the infrastructure to count all these ballots, it may take weeks before final election outcomes are clear. Postal voting has also become a political issue: 58 per cent of Biden’s voters plan to vote by mail, compared to only 17 per cent of Trump’s.

Can a blue shift enable Biden to win?

Because Democrats vote by mail to a greater extent, this means that election outcomes can change during the vote counting. A new phenomenon in the 2018 midterm election was the “blue shift”, in which Republican candidates initially seemed to have picked up more support than predicted, only to lose against Democrats in the final vote count. One scenario is that Trump proclaims himself the winner on election night, but Biden wins in the final count.


Nordic Outlook September 2020

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