CONTENTS
1. Introduction
Biden or Trump, Trump or Biden. We are just over two months away from the US presidential election. Its result will have a huge impact in all areas and will directly affect the plans of international companies and entrepreneurs with interests in the US market. Very few times in the history of presidential elections have we seen two candidates with such disparate visions of how the country should be led. This is especially relevant when the nation is in the largest recession since the Great Depression 90 years ago and in the middle of a serious health and social crisis caused worldwide by COVID-19.
We have seen constant news on this topic in the media, with the Democratic National Convention held virtually a few days ago and the Republican one taking place this week. The messages focus on mutual attack and on how to solve the current crisis. Aspects of international trade receive little attention, but without a doubt the outcome of the elections will have a profound impact on their evolution in the coming years given that the vision of how they should be handled is radically different in each case.
What can be expected from each candidate if elected, in terms of international trade and tariffs, taking into account their history and recent statements? What is the most likely outcome of the presidential election at the moment? We will try to answer these questions based on the information available on the date of publication of this article.
2. Trump
The Trump administration has been essentially faithful to the promises made during the 2016 election campaign regarding its trade policy actions. His doctrine of “America First” included as an objective the reduction of the trade deficit through protectionist measures that would allow the return to the United States of a high volume of jobs in certain sectors, which in his opinion had been lost as a result of globalization. In particular, the unilateral imposition of tariffs and the aggressive renegotiation of trade relations with its main partners have been some of the avenues used.
Some Trump trade policy measures highlighted on his own website:
- Global tariffs with very few exceptions of 25% on imports of steel and 10% for aluminum
- Global tariffs on solar cells (30%) and washing machines (20% -50%), which will be progressively reduced in the coming years.
- US exit from the Trans-Pacific Partnership or TTP, trade agreement with multiple countries (originally Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) signed in February 2016. The US withdrew from the treaty just at the start of Trump’s presidency in January 2017.
- Substitution of NAFTA (North American Free Trade Agreement) by the USMCA (United States-Mexico-Canada trade Agreement), effective as of July 2020, on certain terms widely renegotiated.
- Numerous measures related to China, including tariffs of 25% on imports worth 250 billion dollars, as well as disputes initiated by the United States managed within the framework of the World Trade Organization (WTO).
- Cancellation of the commercial relationship with Cuba initiated in the Obama era and establishment of sanctions.
Although not cited by the Trump campaign website, the trade disputes between the US and the European Union (EU) deserve special attention. They began before the Trump era, but have intensified significantly in recent years as described below:
- In response to the aforementioned global tariffs imposed by the United States, the EU filed a lawsuit before the WTO immediately and in 2018 established tariffs on $3 billion in exports of 180 US products.
- On the other hand, since 2004 there has been a dispute between the EU and the US related to the public aid provided to Airbus by various EU countries, which has been litigated within the framework of the WTO. In October 2019, the WTO authorized the US to impose tariffs on the EU on exports worth $7.5 billion. Immediately, the Trump administration imposed an additional 10% tariff on certain imports of new aircraft (which was subsequently increased to 15%) from countries such as France, Germany, Spain and the United Kingdom, as well as a 25% punitive tariff covering more than 150 product categories from certain EU countries. This list was modified in February 2020 and again on August 12. The impact for some industries is significant, particularly for certain producers of wine, olives, olive oil, cheeses, and other food and beverages. The current list will take effect on September 1, 2020. The US has repeatedly communicated that it will modify the list every 6 months to punish various industries, which has created great uncertainty for exporters in all sectors.
- Independently, the WTO also agreed with the European Union in a dispute symmetrical to the previous one for the public aid received by Boeing in the US. The WTO is expected to authorize the EU in the coming months to impose punitive tariffs on US products worth up to $10 billion.
- In the last month, steps in the opposite direction have been taken seeking to reduce tensions. On July 21, Airbus and the European Union announced (ref Wall Street Journal ) that they will modify the terms of public support for the aerospace giant, with the intention of persuading the US to seek a resolution to the conflict that could lead to a reduction or cancellation of the tariffs imposed on European products. One month later, on August 21, the EU and the US made a joint announcement of tariff reductions on certain exports from each side (lobsters exported by the US and a small group of European products). This cut affects exports worth less than $200 million from each country, so it cannot be described as more than testimonial taking into account the tariffs that are still in force. This is positive and could indicate a change in the trend in trade relations between the two blocs, but obviously the outcome of the elections will affect the evolution of this matter.
The economic consequences of the measures adopted by the Trump administration have been thoroughly evaluated by multiple organizations:
- In January 2020, the Congressional Budget Office (CBO), a federal agency within the legislative branch of government, explained in a report how tariffs reduce economic activity in the United States in three ways: 1) Consumer and capital goods become more expensive; 2) They increase business uncertainty, which reduces or slows investment; and 3) Other countries impose retaliatory tariffs, making US exports more expensive and reducing them. CBO estimated that the trade barriers imposed since 2018 would cause a 0.5% reduction in GDP and an increase in inflation of 0.5% in 2020.
- A US Federal Reserve report reaches similar conclusions
- As an illustration of these conclusions, the motorcycle manufacturer Harley Davidson stopped manufacturing in the US the motorcycles it sells in Europe. US spending was too high, so they decided to move production to Thailand (ref NBC News ).
- An International Monetary Fund (IMF) working paper released in late March 2019 found that the change from NAFTA to USMCA will negatively affect trade in the automotive, textile and clothing sectors, while generating modest aggregate welfare gains, driven mainly by better access to goods markets, with a negligible effect on real GDP .
- With the data in hand, it cannot be said that the electoral promise to achieve a better trade balance through tariffs and an aggressive renegotiation of trade relations has been fulfilled. In fact, the trade deficit has increased substantially in the last 4 years, from $481 billion in 2016 to $577 billion in 2019, an growth of 22% as shown in the following figure based on data from US Census Bureau.
Therefore, there is no evidence that the measures adopted in trade policy, which have had a very negative impact on bilateral relations with the world’s main economies, have achieved the desired result. Imports have continued to grow more than exports and the level of unemployment has only maintained the downward trend of the last decade, until the beginning of the crisis caused by COVID-19.
How will US trade policy evolve if Trump is reelected? Unlike Biden, who gives extensive information on his website on the policies he will promote if he wins in November, Trump’s website focuses on highlighting the promises of 2016 fulfilled during his mandate, without giving much information about his future plans. The best reference on this subject is what is stated in the US Trade Representative report of the US government for 2020, where the following are indicated as priorities:
- Negotiate new balanced trade agreements that defend US interests, in particular with strategic partners such as “the United Kingdom, the European Union and Kenya.”
- Aggressively ensure compliance with US trade laws and WTO rules.
- Continue to pressure China to achieve structural reforms in its economic and trade system.
- Redefining the way the WTO works.
These principles are consistent with the messages transmitted by Trump in recent months, which hardly differ from the message of “America First” and the foundations of the 2016 campaign. Therefore, it is reasonable to think that, if Trump wins on November 3, his trade policy will not be substantially modified.
There could be some hope that the recent positive steps which have reduced slightly the tension with the European Union, as cited above, could be the beginning of an improvement in relations and reduction of tariffs, especially given the pressure in both blocs to seek ways of creating jobs and growth that make it possible to overcome the current economic crisis as quickly as possible. Caution must be exercised, however, given that the Trump doctrine does not accept a direct relationship between international trade and economic growth.
3. Biden
In Joe Biden’s case, international trade aspects do not have a direct presence in the campaign. In his speech of the On August 20 at the Democratic National Convention, upon formally accepting his nomination as the party’s candidate for the US presidency, he did not once refer to issues of international trade, tariffs or foreign investment. These are not matters of concern for the average voter who does not see their connection to the desired economic recovery. The speech focused on values such as patriotism, unity, justice and equality, and on dealing with the health and economic crisis effectively.
This is to be expected, the speech was aligned with the concerns of US voters who according to the polls , identify the coronavirus (35%), the government (22%), the economic crisis (12%) and racism (10%) as the most serious problems.
This is also reflected in the policies proposed by Biden on his campaign website, where the highest priority is given to economic recovery and job creation. It is all a consequence of the seriousness of the current situation, with an unemployment level that jumped from 3.5% in February (the lowest level in 50 years) to 14.7% in April, although it has dropped in recent months to 10.2% in July, largely thanks to the massive intervention of Congress to carry out measures that protect jobs temporarily.
The truth is that on the same website there are statements that they may be perceived as protectionist, such as the proposal to strengthen the “Buy American Act”, a law that encourages the selection of US products and services in purchases made by the federal government. They must be understood in the context of the election campaign and the need to gain the support of a broad spectrum of Democratic Party leaders, some of whom have strong reservations about free trade.
Similarly, another section of Biden’s website highlights the importance of rebuilding supply chains ensuring the ability to manufacture critical products autonomously in the US. Again, it must be understood in the context of the health crisis and the elections.
On the other hand, Biden criticizes the trade wars started by Trump and proposes measures that lead to fair trade with allies for mutual benefit, and a tough fight against abuses by countries (explicitly citing China) who compete unfairly through means such as the violation of intellectual property, industrial espionage or the lack of protection measures for workers or the environment.
Biden’s vision on international trade issues, in a less electoral context not conditioned as directly by the current situation, can be seen more clearly in this article written by Biden himself in Foreign Affairs at the beginning of 2020. Some points of great interest:
- He considers that the trade wars started in the Trump era have directly harmed the American middle class and have deeply damaged relations with the main allies of the United States.
- He believes that when the rules of the international economy are established fairly and enforced, the US benefits from trade because of its greater competitiveness and because 95% of the world’s population lives outside of its borders.
- He assures that Protectionism is a dangerous global trend that can be related to the Great Depression and the start of World War II.
- He defends that the exchange of goods and services between countries will take place with or without agreements and that the United States will benefit from being able to lead the process if it promotes the establishment of fair free trade agreements.
- He commits to ensuring that any new trade agreement takes into account labor and environmental aspects
In short, Biden undoubtedly embraces 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) according to this article from Politico.com.
This position does not differ essentially from the one adopted by Biden in his very long time 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 that 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.
As indicated by this article from CSIS (nonprofit bipartisan organization), Biden and Trump have fundamentally different trade policy goals and views on the value of postwar international trade architecture. Biden sees trade rules as a useful tool in the US arsenal, while Trump seems to see them largely as a restriction on US actions. Trump sees trade as a zero-sum, transactional game and believes that tariffs can have a net positive result for the US, as shown in his agenda to reduce the trade deficit. For Biden, however, if Trump expands or reduces the deficit with China it will not solve the main problem. Biden believes that the United States should establish rules and work through multilateral coalitions to pressure bad actors. To clarify this point, he states: “The answer to this threat is more openness, not less: more friends, more cooperation, more alliances, more democracy.”
For all this it is to be expected that, if Biden is elected president, he will promote agreements such as the TTIP with the EU, he will resume international collaboration within the framework of the WTO and will seek ways to end the ongoing tariff wars. 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 in Congress to implement the major reforms.
4. Who will be the winner?
As always happens on Presidential Election Day, on Tuesday, November 3, not only the president of the nation will be elected, but also, independently and simultaneously, all the members of the lower chamber (‘House of Representatives’), who serve for 2 years, and 35 of the 100 senators in the upper chamber or Senate (‘Senate’), whose mandate is for 6 years. These elections are especially important because polls indicate that there is a chance that the Democratic Party will maintain its current majority in the House and extend it to the Senate. Therefore, it could control both the presidency and both chambers, something that has not happened since the brief period from 2008 to 2010 with Obama. Therefore, a Biden victory could be accompanied by full control of the Capitol by the Democratic Party, which would give it the opportunity to push through profound reforms in multiple fields, including trade policy issues.
Recent polls give Biden a national advantage of about 8 points , although the difference has become as little as 4 points 3 months ago as shown in this graph (ref Real Clear Politics) generated from the multiple polls that are being carried out:
But we must not forget that in 2016 the polls gave Hillary Clinton a clear advantage over Trump of up to 7 points less than a month before the elections, in which, as we all know, Trump triumphed (ref Real Clear Politics ).
The surprise in 2016 was due to several factors. On the one hand, the polls are still an approximate thermometer of the country’s voting intention, based on the answers from people who may not be representative of the population that ultimately participates in the elections.
Additionally, the presidential election system makes voting intention at the national level almost irrelevant. In fact, Hillary Clinton obtained an advantage of 2.1 points in the popular vote (almost 3 million votes) and lost the election. The President is elected by the Electoral College, which has 538 electors. Each state contributes a number of electors that depends on its population. In all states, except Maine and Nebraska, the candidate with the highest number of votes wins all associated electors. That is, it does not make any difference to win in a state by one vote or by a wide margin.
The result in many states is practically decided, except for major surprises. What matters is the result in the “swing states” which are those in which the two parties, Democrat and Republican, have maintained in the past a similar level of support. For this reason, the only relevant surveys are those that provide reliable information on what can happen in these states, especially those with a larger number of electors (such as Florida, Pennsylvania, Ohio or Michigan).
As references of this type of analysis, we can use this graph from August 18, 270win.com , which shows in different shades of blue the states that favor Biden (dark if the victory seems clear, lighter if it seems probable) and in red those that favor Trump, appearing in brown those in which the winner cannot be predicted because there is a margin that is lower than the margin of error of the poll. It seems that Biden could take the victory, although the undecided states and some surprises could change the result.
This Financial Times chart of August 24 shows a similar analysis that gives a much clearer victory to Biden (298 to 119 voters). It would not be necessary for him to win in any of the states that appear as undecided:
5. Conclusions
The two US presidential candidates have radically different views on how international trade should be managed to the greater benefit of what is clearly a priority for both: job creation and economic growth to get out of the crisis caused by COVID-19.
Trump’s vision has been clearly demonstrated in the actions taken since he took office in 2016. Being faithful to his electoral promises, he has followed a protectionist policy and an aggressive attitude to cancel or renegotiate trade agreements with all its partners, using tariffs as a measure of pressure when deemed appropriate. The ultimate objective expressed during the campaign, the reduction of the US trade deficit and the creation of jobs, does not seem to have been achieved with these measures, which on the other hand have had a high cost due to the increase in the prices of some productive resources and the damage done to relationships with key partners such as the European Union. It is not expected that his policy will be significantly modified if he is re-elected.
The vision of Biden has been clearly expressed from his long career as senator and as vice president of the United States from 2008 to 2016. He is a clear defender of the establishment of fair free trade agreements with the main allies ensuring all partners comply with labor and environmental standards. Undoubtedly, the current crisis requires him to prioritize the creation of jobs, so in case of victory he will avoid the establishment of treaties that can negatively impact employment in some sectors, but his anti-protectionist spirit has been clearly demonstrated on multiple occasions.
With just over two months before the elections, no outcome can be predicted reliably, although at the moment Biden appears to have a higher probability of winning. Undoubtedly, the country and its commercial relations with the rest of the world will evolve in a very different way depending on who is the winner.