When it comes to economics, Biden and Trump are not so different after all
Beyond their age, it is hard to find any obvious similarities between Donald Trump and Joe Biden. The president-elect is a lifelong member of the Washington establishment. The outgoing president is a political amateur who wanted to drain that swamp. Mr Biden is a progressive liberal, President Trump a reality TV populist. One is genial, the other combative. But when it comes to economics, you find a surprising amount of common ground.
Politics is presentational and Mr Trump’s style was spikily aggressive. Mr Biden can soften those edges, strike a different tone and pursue much the same economic goals while appearing to reset the US agenda. Precious little was heard about policy in the election campaign, largely because it was fought on personality but also because the candidates’ agendas overlapped.
Both men planned fiscal blowouts. Both prioritised jobs and growth. Both want to isolate China. Both want super-low interest rates. Neither are pure free traders. Where Mr Trump had “America First”, Mr Biden has “Buy American”. The difference between them in many areas of economic policy is little more than degree and approach.
Where that is most apparent is Mr Biden’s jobs agenda. Unemployment in the United States has fallen from a peak of 15 per cent at the height of the pandemic but remains at almost 7 per cent. That’s 11 million people out of work and many more under-employed. Both men pledged to address the crisis, but would come at it from different angles.
Right now, the threat to jobs is from the coronavirus. Mr Trump’s approach is laissez-faire, to let voluntary social restrictions slow the spread while keeping the economy open. Mr Biden has toyed with the idea of a lockdown to buy time to improve testing and allow greater economic activity after reopening. Where both agree is on the need for stimulus to pump-prime the economy and protect workers. Mr Trump held the country hostage before the election by pulling a $US1 trillion support package, not because he or Republicans opposed the deal but because Democrats wanted $US2 trillion.
“There is a myth that Republicans won’t be willing to spend and Democrats will,” Randall Kroszner, economics professor at the University of Chicago Booth School of Business, said. In the spring, Congress approved a $US3 trillion rescue. The $US1 trillion package, 5 per cent of GDP, is now widely expected.
Covid may be the immediate threat, but there is a longer-term challenge on jobs. Mr Trump brought unemployment to a 50-year low of 3.5 per cent before the outbreak, but labour force participation remains historically weak. Mr Biden wants to “build back better”, by which he means green jobs in industries of the future, such as renewables. Mr Trump wanted to “make America great again” (again) by protecting jobs in industries of the past.
Both require massive stimulus. Moody’s, the ratings agency, says that Mr Biden plans to borrow around $US2.5 trillion a year, increasing the national debt to 119 per cent of GDP by the end of his first term. Mr Trump spent his way to growth in his four-year term and planned to borrow a further $US2 trillion annually, raising the debt to 114 per cent of GDP in 2024.
Helping to finance all that borrowing are low interest rates. Mr Trump repeatedly harangued Jerome Powell, the Federal Reserve chairman, for not cutting rates. Since Covid, they have been cut to zero and the Fed has pledged not to raise them until employment is well above neutral levels, which markets assume means no change for three years. In effect, because of the pandemic, Mr Biden inherits what Mr Trump ordered.
Again, the difference between the two plans is one of order, not magnitude. Mr Trump wants to protect existing jobs by taxing rival imports, largely from China, which is certainly easier to deliver than creating new industries. Mr Biden may be able to generate green jobs by retrofitting houses and installing electric car charge points on a mass scale. His “Buy American” pledge guarantees an extra $US400bn state spending on US-made goods and $US300bn for research and development in US technology companies, which may crowd in employment. But he will need a transition to prevent job losses if America is to begin its journey to net zero by 2050, as he plans. Regulations to phase out fossil fuels will cost jobs, particularly in fracking.
On that front, Mr Trump may have given Mr Biden a helping hand. In the short term, his trade war with China will preserve Rust Belt jobs in areas like Michigan and Pennsylvania, states that turned blue in the election. There is no hurry among Democrats to lift Mr Trump’s tariffs and, by stating his support this week for Japan’s claim to the disputed Senkaku islands, Mr Biden was clearly telling Beijing not to expect any easing of tensions.
Oxford Economics expects Mr Biden to scrap the 7.5 per cent tariffs on $US110bn of Chinese consumer goods “as a sign of goodwill and to reduce the burden on businesses and consumers paying the price of those duties”, but to “maintain most tariffs on China”. His China reset is likely to be a Trump-Obama hybrid, keeping tariffs in place while reviving the Obama administration’s internationalist efforts to encircle and isolate Beijing.
Like Mr Trump, Mr Biden is no fan of China. As vice-president, he championed the Trans-Pacific Partnership, which was designed to drag the region into Washington’s regulatory ambit and to contain Chinese expansionism. In 2013, during TPP talks, he accused Beijing of “wholesale theft of proprietary technology”. To apply more pressure on China, he is expected to repair relations with European allies, starting by scrapping tariffs on European imports. Again, same objective as Mr Trump. Different approach.
Mr Biden may be the multilateralist Mr Trump abhors, but when it comes to trade there is a hint of “America First”. No new trade deals will be negotiated “until we’ve made major investments at home, in our workers and our communities”, he has said. Like Mr Trump, he is concerned about factory jobs.
Where Bidenomics and Trumpenomics differ is on regulation and taxes. Mr Biden plans to increase corporation tax and to hit wealthy Americans with higher income taxes. In rejoining the Paris climate accords, he will have to regulate against, and possibly tax, fossil fuels. But for two such different characters, their economics looks surprisingly alike.
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