Now that the world knows the name of the new President of the United States, the focus turned back from the U.S. election to the coronavirus pandemic. What happened yesterday indicates what matters for the U.S. businesses (and world businesses) the most.
Each side, Republicans and Democrats, had an economic plan for the period ahead. Should Republicans have won, a tax cut followed. But Democrats did, and a tax hike comes next, at least for corporations.
However, markets move on future expectations, and it is not only about tax hikes but about the overall picture. Yesterday’s positive COVID-19 news shows what “back to normal” means for U.S. businesses and other businesses around the world. Banks surged yesterday, having one of the best days in a long time? Was it because of Biden winning the White House? No – it was due to the pandemic-related news.
For the first time since the pandemic hit the Western World, people (and markets) see the light at the end of the tunnel. The impact on financial markets is a measurement of how important the breakthrough is.
U.S. Businesses Under Democratic Leadership
If we leave the pandemic besides (assuming we can), the new leadership in the United States comes with major changes for the U.S. businesses, large and small. On the one hand, the Biden administration plans to hike the corporate tax rate to 28% from the current 21%. That is a negative, a burden for business America. On the other hand, the same administration will not focus on trade deals and will not impose barriers to trade. That is a positive for businesses as they can freely compete internationally without the fear of retaliation via tariffs, quotas, or other restrictions.
Recently, the European Commission received the green light to impose tariffs on goods and services from the United States worth $4 billion. This comes in response to a case against Boeing won at the WTO. However, the commission announced that it chooses not to do so, should the new administration in Washington stop the trade war and retaliation policy.
It tells much about the future of U.S. businesses under Biden’s presidency. However, the “blue wave” is not there, as many have hoped. Based on the elections’ outcome (i.e., Biden at the White House and a Republican Senate), we should expect less fiscal stimulus (bad for businesses), a smaller current account deficit (good for businesses), a more aggressive Fed (good for businesses). More precisely – lower for longer, at least when it comes to monetary policy. Once again, good for U.S. businesses.