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Trump Vs. Biden on Economies and Markets

A decade after The Great Recession, Americans are dealing with the worst economy since The Great Depression. Onset by the coronavirus pandemic, US growth cratered in the second quarter of 2020, with inconsistent evidence emerging of a widespread V-shaped recovery in the third quarter.

Now past the Labor Day holiday, we are officially in the US presidential election season, and the state of the economy amid the coronavirus pandemic is at the top of voters’ minds as they weigh sending back to the White House Republican Donald Trump, or Democratic nominee and former Vice President Joe Biden.

Depending upon the outcome of the November presidential election, the US economy could take very different tracks. While there may be some agreement in terms of trade or infrastructure, Trump and Biden diverge on nearly every other economic policy facet – from taxes, to jobs, to the coronavirus pandemic recovery itself.

We outline below key areas and explain how we see them differ in a Trump or a Biden administration.

Trump – Tax rates have been cut during the first Trump term, both at the corporate and individual level. Comments made during the campaign suggest that Trump would seek further cuts to both corporate and individual tax rates to help spur the economy’s recovery from the coronavirus pandemic.

Biden – Tax rates would be poised to go higher under a Biden administration, both at the corporate and individual level. But at the individual level, the Biden plan calls for an increase of 0.4%, while the top tax bracket would jump nearly 13%, back to levels seen under Obama.

Trump – “It’s infrastructure week!” proved a well-worn quote during Trump’s first term, but nothing materialized despite repeated promises for a robust infrastructure spending bill. Trump continues to beat the drum, saying that he’d like to see a $1 trillion infrastructure program passed; the holdup may be Senate Republicans.

Biden – The Democratic challenger has released a $2 trillion infrastructure spending program, aimed at spurring development and investment in carbon-neutral and green energy solutions over four years. The plan was enhanced from its original $1.3 trillion spend over 10 years, insofar as increased spending on a shorter time horizon will enhance the US economy’s recovery from the coronavirus pandemic.

Trump – The White House has been pushing for a skinny fiscal stimulus boost after the $2 trillion used to fund the CARES Act has been depleted. Against a robust automatic unemployment benefits program (seeking $300 per month, down from $600 in the CARES Act), the Trump campaign has proven hesitant about leaning into more deficit spending as the economy, particularly the labor market, has produced above-expectation results in the second half of summer 2020. Likewise, the Trump campaign has proven ambivalent about increasing federal spending to subsidize damaged tax revenue streams at the local and state level.

Biden – The economy will receive much more fiscal support under a Biden administration, insofar as plans outlined thus far suggest that Biden would seek to extend the $600 per month unemployment benefits program established vis-à-vis the CARES Act. Furthermore, a Biden administration would likely be more willing to use the federal purse to help localities and states that have seen their tax bases depleted thanks to reduced income tax and sales tax revenues.

Trump – The US-China trade warwas a hallmark of Trump’s first term. While there have been mixed signals about compliance on both sides of the deal, it is likely that a second Trump term would see the US-China trade war deepen. The trade conflict has started to take on a militaristic aspect in the South China Sea, and it would seem likely that a second Trump term would result in a rekindled US – China trade aggressions, as well as further tensions with allies like the European Union, Japan, and South Korea.

Biden – While a Biden administration would likely take a similarly hard line on China, there would likely be moderation in the US-China trade war, with some efforts at removing tariffs and trade barriers that were constructed during the first Trump term. But even if the US-China trade war doesn’t revert back to its pre-Trump status (Biden is truly starting to sound more like Trump on China), it would be likely that trade relations are normalized with allies like the European Union, Japan, and South Korea.

The composition of Congress will also shape a future US economy. A Biden administration with a Democratic House and a Republican Senate will get little accomplished. Similarly, a Trump administration with a Democratic House and a Republican Senate – what we have now – will get little accomplished. Under both, even in a split Congress, it is highly likely that the federal deficit continues to rise, bringing the deficit hawks out of the woodwork.

Unless both chambers of Congress align with the president’s party after November 3 – either Biden has a Democratic House and Democratic Senate, or Trump has a Republican House and a Republican Senate – we will be stuck with gridlock, making the US economy’s recovery from the coronavirus pandemic all

Reference by: Christopher Vecchio, CFA, Senior Currency Strategist