Let’s start with the most important fact: the Federal Reserve has the largest impact on the US economy. Currently the Fed keeping interest rates higher for longer is translating into falling inflation and a slowing economy. If the Fed were to aggressively cut rates, it would provide significant stimulus. Pretty simple.
Yet, the advent of COVID did create conditions for massive federal government spending programs unlike any since the Great Depression or the Great Recession. Meaning, yes, presidents coupled with a compliant Congress can tip the economic scales. But what is the likelihood this will happen in the future? Small. A split Congress will make this even smaller.
The point to keep in mind is that there will be specific winners and losers from the outcome of the 2024 election. It will be meaningful and that’s why we’re providing a primer on their economic policy differences. This is the first article in a series.
Understanding the economic platforms of Biden and Trump is crucial for anticipating the future trajectory of U.S. economic policy and growth opportunities. While they share similar policies on China, reshoring manufacturing and innovation, their approaches do have significant differences for various sectors, including renewable energy, healthcare, and financial markets. Keep in mind, whoever wins will be dealing with a 2024 budget deficit of $1.9 trillion and rapidly growing federal debt expected to increase from $34 trillion to $54 trillion by 2034 (CBO estimates). Yes, that means they will be limited in what policies they attempt to implement and what they can spend.
Executive Summary:
President Biden’s economic policies emphasize increased government spending on infrastructure, healthcare, and clean energy, funded by higher taxes on corporations and the wealthy. His approach is more multilateral in trade and heavily focused on climate change and social equity.
Former President Trump’s policies focus on tax cuts, deregulation, and a more protectionist trade stance, with significant emphasis on boosting fossil fuel production and reducing government intervention in the economy.
President Joe Biden
Heading into November, Joe Biden is hoping his “Bidenomics” achievements will remain center stage for voters. Investments in infrastructure and green energy are the cornerstones of this approach. His administration proposed a comprehensive infrastructure plan aimed at modernizing the nation’s transportation systems, enhancing broadband access, and upgrading water systems. Additionally, Biden emphasizes transitioning to renewable energy sources, with ambitious goals to reduce carbon emissions and promote clean energy technologies. While addressing climate change is a major priority, ensuring America’s long-term competitiveness with China is another stated goal of domestic investment.
Another key element of Bidenomics is increased spending on social safety nets and workforce development. Biden’s economic agenda outlines continued infusions of federal government funding to support education and healthcare in particular. Expanding access to federally-funded healthcare insurance markets, relieving student debt for millions of Americans, and providing universal pre-kindergarten are intended to bolster human capital and enhance the long-term productivity of the American workforce. The administration’s emphasis on education aims to equip the future workforce with the skills necessary for high-demand jobs in the technology and clean energy sectors. Yet, most of the major education decisions remain at the state and local levels.
Finally, Biden takes a decidedly progressive approach to fiscal and monetary policy. With an eye toward the expiry of the Tax Cuts and Jobs Act in 2026, Biden has proposed raising the corporate tax rate from 21% to 28% and implementing a global minimum tax to curb profit-shifting to tax havens. The administration also aims to increase taxes on individuals earning over $400,000 annually. Overall, Biden tends to respect the independence of the Federal Reserve and wants to maintain established conventions for monetary policy. Biden’s tax policy goals are to fund his extensive public spending programs without exacerbating the national debt.
How to strategize:
- Renewable energy: President Biden will continue to invest heavily in renewable energy technology and deployment. Another four years for President Biden will mean more money allocated and more new projects across the renewable energy value chain.
- Prepare for tax increases: Corporations and high-earners are likely to see their tax bill rise unless a President Biden win is canceled out by sweeping victories by Republicans in both the House and Senate. It’s unlikely the TCJA individual tax cuts for high earners will remain in place.
Former President Donald Trump
The former president is intent on bringing his distinctive brand of economic policy making back to 1600 Pennsylvania Avenue. That includes a heavy use of tariffs. Trump has proposed a 10% tariff on every product coming into the United States and a 60% tax on all Chinese goods. The mitigating factor for many businesses will be their lobbying. In other words, expect carve outs and exemptions for industries that complain the loudest. Winners and losers will be picked.
Another potential change: the head of the Fed. In one of the most bizarre moments of the campaign thus far, former Trump economic advisor Peter Navarro conducted an interview (from prison!) where he predicted Jerome Powell’s dismissal should Trump win a second term. During his presidency, Trump was not shy about voicing his displeasure with Powell’s performance. With the European Central Bank and Bank of Canada both cutting interest rates now, pressure for the Fed to follow suit will only grow from Trump and his allies.
If Trump wins the election, investors can expect another round of deregulation and an attempt to extend the TCJA tax cuts. Trump consistently advocates for reducing regulatory burdens on businesses and wants to drop the overall tax burden below the levels seen in the Tax Cuts and Jobs Act of 2017. Of course, tax cuts’ positive impact would likely be hurt by tariff increases at the border. Trump is a vigorous supporter of using tariffs to protect American industries and reduce America’s trade deficit, but higher tariffs at the border will translate to an effective tax hike on American consumers. Trump’s deregulation efforts will likely extend to environmental regulations, potentially impacting industries such as manufacturing and energy production.
Finally, Trump is focused on achieving total energy independence for the United States, mainly through an expansion in fossil fuel production. Trump’s economic policies emphasize oil and gas drilling, increased coal production, and a complete aversion to global climate commitments. We should expect a move to open currently protected federal lands for drilling and potentially a permitting bill to happen in Congress. Trump has also stated he wants to end the clean energy tax credits in the Inflation Reduction Act. Due to the massive uptake in red states, this will likely only be on the margins with funding for conservation, building efficiency and forestry impacted.
How to strategize:
- Prepare for tariff increases: Tariffs will be back in dramatic fashion. The Biden Administration’s targeted and selective approach to tariffs will be replaced by Trump’s aggressive actions, designed to keep trading partners off balance and increase America’s leverage in trade negotiations. Importing retail companies are likely to be negatively impacted as the tariffs increase the prices of goods. Consumers will likely see price increases on goods that match the tariffs.
- Bet on conventional energy: Look for a second-term President Trump to claw back federal investment in renewable energy and redirect the federal apparatus toward an expansion of conventional oil and gas production. A permitting bill would be a coup and create a wave of upgrading the US electrical grid.
- Expect financial market volatility: Trump’s improvisation and monetary policy meddling could spook investors and cause temporary swings in financial markets. Overall, investors largely view Trump’s policies as bullish, but businesses should prepare for the unpredictable nature of policy.
Analysis
The economic policy priorities of Biden and Trump clearly define competition with China as the central economic challenge facing the United States. Both candidates advocate for policies designed to contain China’s rise, using tariffs, export restrictions, and other methods of economic statecraft to sustain America’s competitive advantage. In addition, both Biden and Trump do not shy away from using America’s fiscal firepower. Large scale deficit spending marked both of their presidencies. In their view, the jobs and prosperity benefits of financing a muscular industrial policy far outweigh the costs. However, the effectiveness of these policies will largely depend on the global economic landscape and domestic political support.
Nonetheless, several areas of divergence stand out. The most obvious concerns planned tariff actions. Biden does not shy away from pointed economic measures. His ban on exports of semiconductor technology to China includes real teeth. The Biden team also continues to stand by several of the Trump-era tariffs on Chinese goods, even as they softened the tariff stance on American allies. By contrast, Trump seeks to ratchet up the global tariff wars. Some economists estimate his proposal to slap 10% tariffs on all imported goods would amount to a $1,700 annual tax on the average American.
The renewable energy sector is also ripe for disruption depending on the outcome in November. A Biden win would largely validate the Bidenomics approach of massive green energy subsidies, providing the administration with another four years to push advances in green energy production, storage, and transmission. If Trump takes office, the pace of investment and enthusiasm is likely to wane. Trump’s actions will be designed to benefit conventional oil and natural gas at the expense of renewables. Despite these potential disruptions, the transition to renewable energy is driven by global market trends and technological advancements, which may continue regardless of U.S. policy shifts. Consistent with conventional energy pursuits, a permitting bill would get pipelines moving and a likely upgrade to the electrical grid.
Even if Trump takes office, one segment likely to buck the overall renewable energy trend is electric vehicles (EV). While the Biden Administration tries to push EV adoption into the far reaches of the nation, Trump and other Republicans have lambasted the plans as impractical mandates.
For all the Republican bluster, the economic realities of EVs remain. Auto manufacturers are investing billions in EV production lines, and many of the benefits are flowing to Republican strongholds in the South and crucial swing states in the Midwest. Moreover, China’s aggressive strides in exporting low-cost EVs around the world are bringing the price down significantly and will help drive demand as US companies’ match. (Even with tariffs on Chinese EVs.) Once in office, Trump and his Republican allies are likely to push forward with federal EV adoption efforts. They will reframe the EV sector as a critical battleground for industrial competition with China and eschew the rhetoric of climate resilience.
For investors, the impacts will be the same. The long-term trend toward electrification of automobiles will continue. Increased EV demand will drive future growth for auto manufacturers, battery producers, and critical mineral suppliers. The strategic importance of EVs in the global market cannot be overstated, making it a crucial area for continued investment and innovation.
The healthcare and pharmaceutical sector is another area to monitor closely depending on the election outcome. Biden’s healthcare policies aim to expand access to affordable healthcare through the enhancement of the Affordable Care Act and increase in medical research spending. Trump instead focuses on reducing healthcare costs through deregulation, direct negotiations with drug providers and reducing any layers between HC buyers and sellers (middlemen).
The healthcare sector will continue to grow significantly no matter who wins. Over the next ten years, federal spending on healthcare is expected to nearly double, from $1.5 trillion to $2.8 trillion. According to the Department of Labor, five of the top ten fastest growing occupations in the United States are in the healthcare sector. But Biden’s approach is likely to benefit companies involved in healthcare services and cutting-edge research, like biopharmaceuticals. Trump’s policies, on the other hand, may drive down prescription drug costs, benefiting insurers and patients at the expense of pharmaceutical companies and research spending. Investment in healthcare infrastructure and technology will be crucial to meet the growing demand and ensure sustainability. AI and techniques like CRISPR will bring about tailored drugs for patients with significant breakthroughs for cancer and other rare diseases.
Last but not least, investors will need to pay close attention to the state of financial markets in the aftermath of the presidential election. Trump and his allies have been clear about their desire to see rate cuts from the Federal Reserve. Thus far Fed officials have resisted calls to cut rates, pointing to resilient economic growth and relatively strong US employment statistics. But alternatives to Fed Chair Jerome Powell are already being publicly floated by the Trump camp.
A host of interest-rate sensitive sectors, including residential real estate, commercial real estate, and industrial equipment, stand to benefit from lower interest rates. Riskier, alternative financial assets also tend to increase in value during periods of lower rates. The cryptocurrency market has been buoyed by some early successes of the inaugural Bitcoin exchange traded funds (ETFs). The Securities and Exchange Commission also recently approved an ETF for another popular cryptocurrency, Ethereum. Look for the cryptocurrency sector to score a boost if Trump wins, much to the chagrin of the anti-crypto Democratic policymakers who prefer a heavy regulatory hand. The evolution of the cryptocurrency market will depend heavily on regulatory frameworks and investor sentiment.
Under a Trump presidency, maintaining or expanding on the Tax Cuts and Jobs Act beyond 2026 and imposing a 10% tariff on all goods coming into the US could create a renewed bout of inflation and a $4 trillion increase in the federal debt (CBO estimates). Geopolitical crises, such as a widening war in the Middle East, could create additional momentum on inflation. In turn, this would force the Fed to keep rates higher for longer and likely set up a confrontation between the central bank and a Trump administration. And that could lead to Federal Reserve Chairman Powell being replaced.
At present, there seem to be no limits to America’s borrowing power. The federal budget deficit steadily increases year-after-year, with the prospect of hitting nearly $54 trillion in 2034 if left unchecked. Trump or Biden may escape their next term without a need to deal substantively with the budget deficit. But nobody knows exactly when the global bond market may tire of US treasuries and the lack of action to reduce the debt/deficit.
Wrap Up
As the 2024 U.S. presidential election approaches, the economic policies of Joe Biden and Donald Trump offer significantly different paths for specific sectors. Biden focuses on investing in infrastructure, renewable energy, and social programs to modernize the economy and support the middle-income earners. Trump emphasizes deregulation, tax cuts, and energy independence through fossil fuels, aiming to protect American industries with aggressive trade policies and support the middle-income earners.
Both candidates recognize the challenge posed by China and both will use tariffs to mitigate the challenges. But their strategies differ. Biden seeks to strengthen alliances and federal investments, while Trump would use large tariffs and corporate tax cuts to make US companies more competitive.
Overall for growth, the Fed will have a bigger influence on the economy, the stock market and jobs than the policies of these candidates. But their policies will have an impact.
References:
- https://www.cbo.gov/publication/60419
- https://joebiden.com/accomplishments/
- https://www.donaldjtrump.com/issues
- https://economics.td.com/us-quarterly-economic-forecast
- https://thoughtleadership.rbc.com/let-me-see-you-get-low-central-banks-kick-off-rate-cutting-cycle/
- https://thehill.com/business/4676814-peter-navarro-fed-chair-second-trump-administration/mlite/?nxs-test=mlite
- https://www.pewresearch.org/politics/2024/02/29/americans-top-policy-priority-for-2024-strengthening-the-economy/
- https://taxfoundation.org/research/all/federal/2017-tax-cuts-jobs-act-analysis/
- https://www.bbc.com/news/world-us-canada-68790777.amp
- https://www.bloomberg.com/news/articles/2024-01-11/bidenomics-president-biden-s-economic-philosophy-explained?embedded-checkout=true
- https://www.cbsnews.com/news/trump-tariffs-proposal-10-percent-1700-cost-per-us-household/
- https://www.cbo.gov/system/files/2024-06/60039-Executive-Summary.pdf
- https://www.bls.gov/ooh/fastest-growing.htm
