US election outlook
- United States of America
COVID-19 will shape a close-fought US election – and its implications for global business
The Democratic National Convention (DNC) last week bluntly described President Donald Trump’s re-election as an existential threat to the republic. The Republican National Convention (RNC) this week will say the same of “radical” progressive policies towards climate change, gun control, healthcare, and public safety. Ideology – as we wrote last year – is fast shaping the terrain of the 2020 US election.
COVID-19 continues to ravage the US far more than most other wealthy countries. This is not the American exceptionalism anyone expected or wanted – least of all Trump, who faces eroding support among seniors, independents, and suburbanites over his administration’s haphazard response. Record-high stock prices could ring hollow for 15 million unemployed Americans – and political and foreign policy fireworks may not distract voters from the mounting death toll from COVID-19.
Election implications of COVID-19
Between the pandemic and the economy, the political stakes are historically-high – and COVID-19 is shaping the ground for a change election. Democratic candidate Joe Biden has held a steady lead against Trump nationwide and in key swing states for months. Trump’s approval rating has reverted to its stable, historically low level (anchored by a solid partisan base). No US president since Calvin Coolidge in 1924 has been re-elected following a recession – and the Great Coronavirus Recession is nearly the worst since then, by some measures. For these main reasons, Biden is likely to win the presidency in November.
However, COVID-19 could play to Trump’s “electoral college” strategy of winning by narrow margins in key states. One of the factoids from 2016 is that Trump won by fewer than 80,000 votes in three states – out of nearly 129 million votes cast. The decline in Black voter turnout in Wisconsin from the 2012 election was four times larger than Trump’s margin in the decisive state. In the narrowest battleground – Michigan – former first lady Michelle Obama memorably noted during the DNC that Trump’s margin averaged out to two votes per precinct. Trump does not need to win everywhere, just in the states (and precincts) that will decide the outcome.
Put another way, voter turnout is likely to be decisive in November – and COVID-19 will dramatically alter voting patterns by suppressing in-person turnout and surging postal voting. Around 40% of US voters used postal voting in the 2016 general and 2018 midterm elections, and some observers believe that number could double this year. (Hence the continuing political brawl over operational changes at the US Postal Service (USPS) three months before the election.) Unless there is an overwhelming outcome one way or the other, COVID-19 changes in voting patterns are likely to be decisive at the razor thin margin.
US foreign policy and trade
The election will have significant implications for global business. As Control Risks has noted before, the Trump administration deliberately broke continuity with historical and traditional modes and objectives of US foreign policy. Under the mantra “America First,” Trump launched a series of destabilizing trade wars against allies and adversaries alike. The US has traded multilateral diplomacy at international institutions for unilateral coercion backed by potent financial sanctions and export controls. Military options – never really off the table in US foreign policy – came front and center, forcing companies to dust off evacuation plans and plan for operational disruption in the event of abrupt “fire and fury”.
Biden, by contrast, pledges to pursue a much more familiar, conventional US foreign policy in key areas. While his approach will remain competitive, Biden will generally seek to renew traditional US alliances and re-join and work through multilateral institutions, helped by a deep bench of experienced foreign policy aides. A Biden administration would be likely to alleviate key irritants in US foreign relations around immigration, climate change, Iran, and trade.
Equally important to international business, the foreign policymaking process would become more deliberate and predictable – likely coming as a relief to companies whiplashed by the combative “art of the deal” embraced by Trump. Industry and business lobby groups – stymied by many aspects of the Trump administration – would regain some influence.
But Biden could not – and in certain ways would not – put the genie back in the bottle. The US going forward faces deep and justifiable international scepticism about the credibility and durability of its commitments, particularly among core strategic allies. Biden would sustain a relatively hard line against China, even as a change in administration might create an opportunity to reset relations. The Democrats have made clear that trade policy will continue to prioritize domestic economic development: not only would new trade deals take a back seat to the COVID-19 recovery, they would be likely to include stronger labor, environment, gender, and human rights regulations for business. The differences in several areas are more in approach – multilateralism versus unilateralism – than objective.
Suffice it to say that Trump’s re-election would be likely to propel the US further down the road of strongarm, transactional geopolitics. International institutions already on the ropes would be further weakened and potentially rendered irrelevant by “big power” competition. Global threats like climate change would go substantially unaddressed during a critical window. Companies from Beijing to Brussels would find their opportunity and risk environments shaped strongly – even exclusively – by geopolitics.
Global businesses can expect US regulatory risks to remain elevated
We expect risks in the US domestic business environment to remain elevated as well. Biden will certainly make moves to reimpose business regulations and strengthen enforcement that have been significantly relaxed by the Trump administration. If Democrats also take narrow control of Congress, a Biden administration would have substantial leeway for at least two years to advance major goals regarding corporate taxation, healthcare policy, environmental regulation, the minimum wage, and antitrust enforcement (focusing on the technology sector).
Indeed, COVID-19 makes it likely that the next administration – either way – will focus heavily on the home front. Both Republicans and Democrats want to indigenize the medical supply chain ahead of the next pandemic. Both avow a more protectionist trade posture, including restrictions on foreign investment in critical sectors. Both will be forced to grapple with the legacy of historic deficits and economic transformation wrought by the pandemic, from the collapse of small businesses to the rise of remote working. And both will face an electorate with high expectations and limited patience.
Even as regulatory risks are likely to remain elevated, the new year – and potentially a new administration – will also bring new opportunities for business. “Infrastructure week” – a running inside-the-Beltway joke since 2017 – might finally materialize as a way to jumpstart US growth (just as after the 2008-09 financial crisis). Needless to say, Biden and the Democrats have ambitious plans for a “green recovery” – financed by corporate tax dollars – that would hit oil and gas but benefit construction, engineering, renewables, and real estate. Reshoring incentives for medical supply chains might take some of the sting out of rising political and regulatory scrutiny of pharmaceutical prices. And a COVID-19 vaccine – if it arrives – will help underpin the consumer rebound elemental to the US economy.
Like any other political process, the 2020 election will redistribute winners and losers, in the US and abroad. What it will not do, however, is restore the post-Cold War consensus around globalization and economic liberalization. The rules for business are changing – have changed – and the election will set the tone for 2021 and beyond.
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