If there is one election that, arguably, affects the aam aadmi and holds almost as much interest for the chatterati as our own Lok Sabha elections, it is tomorrow’s US presidential elections. From the Jalandhar cab driver, hoping to get that elusive taxi licence in New York some day, to the IT rookie in Andhra Pradesh, dreaming of a job in Google, to the Kerala nurse hoping to land a job in a hospital, where she will get far more respect and money than she can dream of in India, to the student waiting for her i-20 form, to countless others in India, the US remains the proverbial land of milk and honey.
Never mind that racism has arguably become much more overt under President Donald Trump. For now, most polls predict a Joe Biden victory. But remember, most polls had predicted a Hillary Clinton victory in 2016. Nevertheless, in about 48 hours from now, we will have a fair idea of who’s going to be the 46th president of the US. Although, this time around, there are many ifs and buts, with Trump threatening to contest a Biden victory.
Also, though the focus is on the presidential elections, the outcome of elections to the US House of Representatives and the Senate, being held on the same day, is no less important. The president’s ability to drive policy depends a great deal on which political party takes control of Congress.
That’s as far as the politics of the elections goes. When it comes to economics, the reality is that regardless of who gets elected, the focus will be almost entirely domestic. The global economy will barely get a look-in. Even so, there are three broad areas of US policy that will, willy-nilly, have a spill-over effect on both the global and Indian economy. These relate to fiscal, trade and monetary policy. So where do the two contenders stand on these?
TRADE: Trump’s election in 2016 marked the biggest shift — almost reversal — of post-World War 2 US trade policies, as the country turned increasingly protectionist. For Trump, the US’s woes stemmed from bad trade deals. Renegotiating trade agreements, hiking import tariffs, distancing from the World Trade Organization (WTO), all became par for the course.
Biden, in contrast, has a history of supporting free trade. He has described tariffs imposed by Trump as ‘damaging’, ‘reckless’ and ‘disastrous’. But any hope that protectionist policies may be reversed is premature. Not only because Biden would be eager to dispel anxieties that he is soft on China because of his son, Hunter Biden’s reportedly close links with the Chinese leadership, but also because the current political environment will compel him to be tough on China. The US-China trade wars may have hurt US consumers and global trade alike. But they enjoy public support. So, expect a continuation of protectionist trade policies, regardless of who is elected.
FISCAL: The wrangling between Democrats and Republicans over stimulus packages may suggest they are poles apart on fiscal policy. In truth, both accept the need for further stimulus. So, even as Trump is sure to continue with his strategy of being soft on corporates and the rich, Biden’s plan, ‘Save the middle class to save America’, is about raising taxes on the rich, when it comes to the stimulus. They won’t be very different.
Also, because the dollar’s position as international reserve currency puts the US in a unique position, the US can run up huge deficits without having to worry about financing. It can simply print dollars. As John Connelly, treasury secretary under President Richard Nixon, famously remarked, ‘Our currency, your problem.’
So, expect a generous stimulus package, regardless of who wins. A speedy recovery of the US economy to pre-Covid levels should normally be good news for the global economy. But not when it is combined with a protectionist trade policy.
MONETARY: Unlike on the trade and fiscal policy fronts, there is no uncertainty of divergence, however, when it comes to monetary policy. Not only because US Federal Reserve chairman Jerome Powell’s term ends only in January 2028. But also because the Fed, while not independent in law, enjoys a great deal of autonomy in practice.
Trump made no bones about his unhappiness with Powell. But that did not deter the Fed from raising interest rates in 2018. So, regardless of who occupies the White House next, Fed policy is unlikely to be coloured by the politics of its occupant. The Fed has already made its intention to keep monetary policy accommodative near-term clear. So, expect the surfeit of global capital, with its attendant long-term problems, like asset bubbles, future inflation, and currency appreciation in emerging markets making their exchange rates uncompetitive, to continue.
Where does all this leave the global economy, and India in particular? Pretty much as before — between a rock and a hard place. Regardless of who wins the elections, US policy is unlikely to suit the needs of the global economy.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)