CONTENTS
1. Introduction
The inauguration of Joe Biden as President of the United States on January 20 represents a radical change of course with respect to what has been the period led by Donald Trump. Without a doubt, it is going to have a significant impact on international companies that compete or want to compete in the US market, which we will analyze in detail in this article.
We will study the depth of the expected changes, taking into account the nuances of the US political system and the limited power of the President, as well as the priorities of the new administration. We will learn about the people selected for key government positions that are most relevant to international companies. We will address issues such as the expected evolution of trade agreements and tariffs, immigration and travel bans. Finally, we will identify sectors that may present greater opportunities in this new phase.
2. Biden's real ability to drive meaningful change
On January 6, the world’s media focused their attention on the assault on the US Capitol, the meeting place of the US Congress in Washington DC, which includes the House of Representatives and the Senate. A piece of news that took place that same day, to which many media hardly paid attention, was the confirmation of the victory of the Democratic Party in the state of Georgia in the second round of the Senate elections, obtaining the two seats that were being disputed. This result gave the party 50 of the 100 senators for the new term which, thanks to Vice President Kamala Harris’ tie-breaking vote provides them with control, albeit fragile, of the Senate. This is added to the absolute majority that it had already achieved in the House, much more comfortable.
All this gives Biden a privileged position to promote reforms, with control of the Presidency and both chambers by his party, something that had not occurred since the period from 2008 to 2010 during the first Obama presidency. In this country, there is no voting discipline customary in other democracies, in which it is exceptional for a representative to vote differently from the direction set by their party. In the US it is not uncommon for a congress person to make decisions independently at times based on the interests of their state or district. Additionally, the Democratic Party includes politicians from a broad spectrum with divergent views on many issues. On the other hand, the US political system requires two-thirds support from one or both houses in some special cases, which include the ratification of international treaties. To further complicate matters, a very particular Senate rule called ‘filibustering’ allows the minority party to block or delay the passage of bills when they do not get at least a 60% support. For these reasons, Biden will need to negotiate with members of his party, and sometimes with the Republican Party, the most profound legislative reforms.
But a priori the control of Congress by his party will allow Biden to design the legislative agenda, as well as appoint the members of his government and new judges of the Supreme Court, since only a simple majority will be necessary for their confirmation by the Senate. Given that in 2022 a third of the senators and all the members of the House will be re-elected, and taking into account the current technical tie, it is to be expected that during the next two years Biden will do everything possible to push forward his most important reforms.
It is important to note that Biden leads a center project in which positions of the most radical wing of the Democratic Party are not supported. He has also promised to do what he can to unite the country after a few years of progressive polarization of society. In addition, his career of more than 30 years as a senator and 8 years as vice president is full of examples that demonstrate his ability to negotiate and achieve consensus with politicians of different parties. He was even able to develop a great friendship with Republican leaders such as John McCain, the 2008 presidential candidate. Therefore, it is expected that Biden will be able to carry out a good part of his electoral program.
3. Biden's priorities
During his campaign and in repeated interventions since his victory, Biden has made his priorities very clear:
- Overcoming the health crisis caused by COVID-19, which has already caused more than 400,000 deaths in the country and is at its worst. Since November, more than 200,000 new infections a day have been registered, and the daily average of deaths has already exceeded 3,000. Biden has pledged to vaccinate 100 million Americans in his first 100 days in the White House.
- Reactivate the ailing economy. The unemployment level has been stagnant above 6.5% for a few months, after a rapid decline since March. The strong growth of the stock market in 2020 (almost 16% of the SP500 index), closely associated with that of a few large technology companies, the rapid recovery of the Gross Domestic Product (which jumped quickly from -31.4% in Q2 to 33.4 % in Q3) do not reflect the serious situation in which some sectors and a good number of small and medium-sized companies find themselves. We are in a recovery not in the form of a V or a U, not an L or a W but a K, with significant inequality between sectors that have recovered quickly and others that have entered a deep and prolonged decline.
For all this, Biden has just proposed a new stimulus budget package with a value of $1,900,000,000,000, that is, almost 2 trillion dollars, or 2 European billion dollars. Its objective is multiple and includes providing aid to the most disadvantaged people, support for small businesses and local governments, and financing vaccines and COVID-19 tests. It will have to be approved by Congress, but a priori it is likely that with some modifications it will go ahead.
The new president, as Obama did in 2009 with Biden himself as Vice President, will face a severe economic crisis at the beginning of his term. It is hoped that he can repeat Obama’s success in stopping the Great Recession of 2008, leading to the longest period of continuous growth in US history (from June 2009 until the pandemic pulverized it in February 2020). Without a doubt, the fortune of being able to have several vaccines developed in record time from the beginning of his mandate will be of great help, partly thanks to the gigantic Operation Warp Speed led by the previous federal government and which should allow immunizing a good part of the population in the coming months.
A question mark for the next few years is how the country will be able to bear the cost of the different stimulus packages that have been approved, plus the one that Biden is promoting. The ratio between national debt and gross domestic product has skyrocketed to 127%, the highest level in history, surpassing that reached during World War II (where it ballooned to 121%) and with expectations that it may continue to grow in the future if extensive budget reforms are not implemented. Undoubtedly, sooner or later a far-reaching tax reform will be necessary that will go in the opposite direction to that implemented by Trump in 2017 and which entailed a significant reduction in taxes for companies and a good part of the population.
4. People appointed to key positions
It is interesting to see the profile of the cabinet members selected by Biden who will lead the ministries with the greatest impact on international companies. They are not positions that receive a lot of media attention, but they directly handle key issues such as international trade and immigration. His profile can give us a clear idea of the policies that Biden wants to promote from the new government. All of them will have to be confirmed by the Senate in the coming days, but nominally no problems are expected due to the small but sufficient majority that the Democratic Party has achieved in the last elections. As we will see, these are people with very diverse characteristics but who share the fact of belonging to immigrant families.
Gina Raimondo will be the new ‘Secretary of Commerce’ or Minister of Commerce, since she has enormous influence on everything related to international trade but also assumes competences in aspects as diverse as industrial development, technological innovation and climate change. At the age of 49, she has been the governor of the small state of Rhode Island since 2015, which has a population of just over a million people.
Granddaughter of an Italian immigrant, she is considered one of the most brilliant figures in the Democratic Party and is a moderate in her political positions. Educated in economics and law at Harvard, Oxford and Yale, she worked in the financial sector in venture capital firms before creating her own investment company in 2000 in which she still maintains her stake. In 2010 she went to the public sector and began her time in the government of Rhode Island. Therefore, she brings experience in various facets, as an executive, entrepreneur and manager of the public sector, which can be very useful for her new position.
For the ignorant who accuse Biden of being a socialist, the message could not be clearer: Gina Raimondo is a businesswoman with a vision of progress based on economic development and trade. As the Governor of Rhode Island for the past 5 years, she did an outstanding job attracting private investors to her state that created thousands of jobs.
It is a significant contrast to her predecessor, Wilbur Ross, a Trump-friendly billionaire businessman with a highly protectionist profile. Gina Riamondo will have as one of her great challenges developing a constructive and mutually beneficial relationship with China, and restoring trade relations with traditional allies such as the European Union.
Katherine Tai will be the new US Trade Representative, a position considered as part of the Government Cabinet together with the secretaries and therefore a direct subordinate of the President. From that position, she will lead the Office of the US Trade Representative (USTR). The USTR is the agency responsible for developing and recommending international trade policy to the President. It also deals with negotiating trade agreements with other countries.
Tai, 45, of Chinese parents, speaks fluent Mandarin and is a Yale- and Harvard-trained lawyer. She has extensive experience in international trade issues as part of USTR since 2007. She played a key role as a representative of the House in the negotiation with the Trump administration that resulted in the USMCA free trade agreement between the US, Canada and Mexico, approved in July 2020, replacing NAFTA.
She will have the difficult task of fulfilling Biden’s mandate to restore trade relations with America’s allies, including the European Union. She will also assume the mission of improving the commercial relationship with China, but always ensuring compliance with what the new President considers basic principles, such as respect for intellectual property and essential rights of workers to ensure fair competition.
Although the priority of the new administration will be to improve the economy, the resolution of some trade wars and the rationalization of tariffs, as long as it can be done in a way that is favorable to US interests, will also be some of Tai’s priorities.
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Alejandro Mayorkas will be the new Secretary of Homeland Security or head of the Department of Homeland Security (DHS) which includes, among other agencies, the United States Citizenship and Immigration Service (USCIS). The USCIS regulates everything related to the visas necessary to reside in the United States and therefore has a direct impact on the activities of international companies.
Born in Cuba in 1959, he arrived the following year as a refugee in the United States with his parents, both Jews, fleeing the Castro revolution. His father was a Cuban businessman and his mother a Romanian who had escaped the Holocaust in the 1940s. Raised in California, he was trained as a lawyer at the Universities of Berkeley and Loyola. If confirmed, he will be the first immigrant and first Hispanic to fill that position.
Alejandro has a long history in the public sector that should allow him to be decisive from day one. He led USCIS from 2009 to 2013 under Obama’s first presidency and was subsequently the number two in the ministry he will now lead, as ‘Deputy Secretary’, from 2013 to 2016.
His previous phase leading USCIS, during which he developed programs highly valued by immigrant communities such as DACA, allows him to predict a much friendlier attitude towards immigration than the country has had during the Trump era.
5. International trade
Without a doubt, a substantial change is to be expected in this area. Biden’s attitude of multilateralism has already been demonstrated with decisions that have been implemented immediately, such as rejoining the Paris Treaty on Climate Change or returning to the World Health Organization. The normalization of relations (political and commercial) with its main partners, including the European Union, is one of Biden’s priorities.
In particular, trade tension with Europe has increased significantly during the Trump era. In November 2020, the European Union imposed tariffs on 4,000 million dollars of imports of US products, applying the authorization granted by the World Trade Organization (WTO) in its resolution on the claim for public aid granted to Boeing. These tariffs are similar to those imposed by the US on the EU in 2019 (7.5 billion dollars), also authorized by the WTO as a consequence of public aid to Airbus. The EU has stressed its interest in immediately negotiating with the US a reduction of tariffs on both sides and trusts that this will be much easier with the new President.
Biden advocates for a rules-based international order, led by the United States, with an emphasis on reducing trade barriers, but setting global trade standards. An example is his interest in renegotiating the TPP (Trans-Pacific Partnership).
This position does not differ essentially from that adopted by Biden in his very long period as senator from 1973 to 2009 (he supported the North American Free Trade Agreement or NAFTA in 1994), and as Vice President of the United States between 2008 and 2016 during the Obama era, a period sueing which he decisively promoted various free trade agreements and a multilateralist attitude. Not all were achievements, the gigantic free trade agreement with the European Union (Transatlantic Trade and Investment Partnership Agreement or TTIP) was never closed.
It is to be hoped that the new administration will resume international collaboration within the framework of the World Trade Organization and seek ways to end the tariff wars of recent years. It is also possible that, in the medium term, Biden will consider promoting agreements such as the TTIP with the EU. It should not be forgotten that in the short term, his priority will undoubtedly be the creation of jobs, and that he will have to obtain the necessary support from Congress to implement the major reforms and ratify international treaties.
In any case, it should be noted that tariffs and free trade agreements affect certain export sectors very directly, but not a high percentage of international companies with business in the United States.
6. Immigration and travel bans
Since June 2020 in the US there has been a suspension of permanent residence permits (“Green Cards”) as well as H-1B, H-2B, J-1 and L-1 visas (it excludes E-2 Investment visas). In one of his last decisions, on December 31, 2020, Trump extended the suspension until the end of March 2021, well into the Biden presidency. The justification given for this measure is to protect the jobs of Americans in the face of a huge growth in unemployment caused by the crisis derived from COVID-19. It has encountered fierce opposition from organizations such as the US Chamber of Commerce or the Manufacturers Association, which have declared that this measure seriously damages the economic interests of the country and have even filed lawsuits, some of which have been successful.
On the other hand, since the first half of 2020 there have been a series of travel bans that, with few exceptions, prevent travelers from entering the country if they have been in the previous 14 days in China, Brazil, Iran, the UK or the Schengen pact countries (most of Europe). The origin of this measure is the intention of limiting the transmission of the coronavirus associated with COVID-19. The truth is that this list has not been updated at any time to reflect the state of the level of contagion in each country, having permanently included nations that have gone through phases with a level much lower than that of the United States, and has not included to others with much more unfavorable situations. Nor have criteria been defined that allow knowing when the restrictions may be modified. Unexpectedly, two days before his departure from the White House, Trump announced on January 18 the lifting of travel bans from the United Kingdom, Brazil and countries of the Schengen area, but immediately a spokesman for incoming President Biden indicated that the restrictions would be maintained for the time being.
The impact of both measures on countless entrepreneurs, executives, professionals and students around the world, as well as on their families, is immense. Biden’s more favorable attitude to immigration compared to Trump, together with the need to encourage foreign investment to solve the current serious economic crisis, should facilitate a progressive resolution of the existing blockade on most of the visas routinely used by companies to transfer their employees and a rationalization of travel bans in the coming months as circumstances allow.
An immediate sign of his much more open position on immigration is Biden’s plan to push a new law that will regularize the situation of the more than 11 million illegal immigrants residing in the country in the medium term.
7. Opportunities for international companies
Some sectors are especially interesting:
- Renewable Energy and Clean Technology: As a consequence of Biden’s commitment to return to the Paris Agreement against Climate Change, demand for technology will increase dramatically for the use of renewable energies, electric vehicles and any other that contributes in this regard. Biden has assumed the goal of zero net carbon emissions by 2050. Some international companies are already looking to seize the opportunity, as illustrated by the recent purchase by the Spanish company Naturgy of a solar company in the US that represents an investment of almost 1,500 million euros.
- Technology: COVID-19 has accelerated the transition to a digital economy by 5 years in many areas and has exponentially increased the use of advanced technologies such as artificial intelligence. The immigration freeze, which very directly affects the availability of engineers who usually came with an H-1B visa, offers opportunities for companies that can provide products and services from outside the country. On the other hand, Biden has clearly communicated the enormous importance he attaches to science and technology as pillars for his decision-making and as the basis for the economic recovery that he aims to achieve.
- Biotechnology / Pharma: obviously any product or service that helps fight COVID-19 will have an almost unlimited demand, but the demand and the level of investment in this sector has skyrocketed during the pandemic in all areas. The need to reduce healthcare costs, which consume 18% of the country’s gross domestic product, is immense. Biden’s intention to maintain and develop Obamacare will no doubt continue to increase demand for innovation in this sector.
- Infrastructures: A recurring problem in the country is the high degree of obsolescence of its roads, bridges, dams, airports and other basic structures for the economy. There is a huge need for repair and new works in many cities.
- Virtual services: The pandemic has greatly reduced the importance of the geographical location of people. Talent and flexibility are much more relevant. This opens up opportunities for companies and professionals around the world who can provide valuable services from a distance.
- Reshoring / nearshoring: Disruptions to supply chains caused by COVID-19 have created a tendency to recover domestic production or move it to nearby or low-risk countries. Companies that can open production centers in the US or Mexico (thanks to the free trade agreement) will have access to opportunities of great interest.
- Products hit by tariffs during the Trump era, such as many types of wines, cheeses, olives and other products of European origin, could be favored by the expected reduction in trade tension that should lead to a cut in the tariffs imposed by the US in recent years on these imports.
- Marijuana: No kidding. In recent years there has been a progressive legalization of the consumption, possession and commercialization of the products derived from this plant at the state level. There are still some federal barriers and regulations at the federal level that are more likely to change with a Democratic Party administration.
8. Conclusions
Undoubtedly, with President Biden, a new phase opens in the United States that will mark enormous differences with respect to the previous one. Aspects such as international trade, relations with the European Union or immigration will be affected, in all probability, by changes that should favor the entry of international companies to what, for many reasons, continues to be the most attractive market in the world.