Economic Challenges and Policy Directions in the Biden Era

The incoming U.S. presidential election is an issue of major global concern; this is because the winner will not only affect domestic affairs in the United States, but will also determine the relationship between the U.S. and the rest of the world. A follow-up study of the ANBOUND 100+ Team shows that six key states, including Florida and Pennsylvania, will decide the fate of Donald Trump in this election as Donald Trump’s polls are at a disadvantage. The statistics indicate that unless some black swan event completely reverses the trend, it is unlikely for Trump to be reelected, while Joe Biden has a higher probability of becoming the 46th President of the United States.

In the event that the Biden era does come, it will undoubtedly bring about a host of changes in the U.S. foreign policy, geopolitical competition, the participation of the U.S. in global multilateral issues, and U.S.-China relations. In a previous analysis concerning U.S.-China relations in the Biden era, ANBOUND points out that the Biden administration will adjust the Trump administration’s extreme policies in multiple ways. During the presidentship of Trump, U.S.-China relations were basically determined by Trump alone. Should Biden become the next POTUS, even if the tough and antagonistic nature of the U.S. against China remains unchanged, it will still lead to a more regular and predictable framework, and we might see the slowdown or even the halt of the U.S.-China trade war.

For the global market, what matters the most is the economic policies that would be implemented in the Biden era and their impact on the world economy, hence the emergence of what is touted as “Bidenomics”. What economic challenges will the Biden era face? What are his priorities in the economy? To answer these, The Economist has recently listed several important issues that Biden needs to pay attention to in one of its feature articles.

First of all, Biden needs to pass a huge “recovery” bill in Congress. Some market analysts estimate that the United States needs US$ 2 trillion to US$ 3 trillion, which includes short-term stimulus funds to support unemployment insurance and help state governments and other local governments to cope with the budget hole. Biden also needs to provide grants or loans to small businesses that have not received as much aid as large firms. Other than that, it would also be necessary for Biden to ease tensions with China to appease the market. If vaccines for the novel coronavirus are out, Biden will need to adopt a co-operative attitude rather than a transactional approach in diplomatic relations. This will make it easier to share vaccines globally while facilitating the reopening of borders and the restoration of trade.

Biden’s economic recovery bill also needs to target those “build back better” projects, such as the United States’ underinvestment in large-scale infrastructure projects (the average American bridge’s age is 43 years). These are not only long-term issues that the United States needs to resolve, but they should also be Biden’s priorities. Scientific research investment is also an important aspect. The U.S. government’s investment in research and development (R&D) needs to be increased. R&D in the United States accounted for more than 1.5% of GDP in 1960 and has now fallen to a mere 0.7%. The Biden administration will need more R&D investment in technology and renewable energy. Biden would also want to undo Trump’s immigration policy that hurts the competitiveness of the United States, and to improve the living standards and social mobility of the middle class. This means that the United States must invest more in education, health, and housing. In addition, the United States needs to raise the minimum hourly wage to US$ 15. Currently, 17 million Americans earn less than the minimum wage.

In order to support the above-mentioned spending plans, Biden may need to increase taxes and reform fiscal policies. Assuming that the aforementioned spending plans can been acted, the combined annual public expenditure growth is equivalent to 3% of GDP. To this end, Biden needs to raise taxes to cover about half of the approved expenditures and impose higher taxes on businesses and the wealthy. Studies have shown that Biden’s tax increase policy may reduce the after-tax profits of companies by as much as 12%, while the income of the top 1% of the rich may drop by as much as 14%. In order to maintain financial sustainability, Biden will also be unable to escape the practice of expanding the deficit. Research by the Congressional Budget Office shows that public debt will reach nearly 200% of GDP by 2050. There seems to be no reason to worry in the short term, because interest rates in the United States are close to zero and the Fed is buying government debt. However, in the long run, the U.S.’ ever-expanding debt will eventually damage America’s national strength.

Some analysts believe that if the next POTUS can overcome this long-term challenge, the United States will greatly benefit from it. This means that the United States will begin to establish a consensus on stronger fiscal constraints based on welfare spending and sustainable taxation. However, researchers at ANBOUND believe that with the current U.S. economic model, it may be difficult to get rid of the expansion of debt issuance and the increase of deficits.

If Biden wins the election, a guaranteed change would be the adjustments in trade policies. The smooth operation of international trade is the most profound and typical manifestation of globalization, and Trump has alienated the U.S., causing the country to be criticized by the world. Biden on the other hand, has a record of supporting free trade. Although he will not immediately abolish the tariffs imposed by the United States, he needs to reduce U.S. trade protectionism, as well as establish and manage a new framework for economic relations with China.

Biden will also need to return to multilateral co-operation on issues such as global climate change. He has previously demonstrated his strong will in this regard, saying that he would return to the Paris Agreement on the first day after taking office. The global climate issue is a rare multilateral issue that transcends ideological and geopolitical disputes, and China is beginning to play an increasingly important role in it, whereas the European allies of the United States attach greater importance to multilateral cooperation on global climate issues. If the Biden administration wants to reverse the Trump administration’s extreme practices, it would need to be take a cooperative stance regarding global climate change as soon as possible.

Final analysis conclusion:

The results for the U.S. election will soon be announced. Judging from the polls so far, it is most likely that Biden will emerge victoriously. If Biden is to be in charge of the White House, we will witness the emergence of “Bidenomics”. The main problems and key challenges “Bidenomics” faces will determine the direction of Biden’s future policies to a considerable extent, which will also go on to affect the rest of the world.

He Jun
He Jun
Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy