On Saturday, Biden’s lead in the vote count for the US state of Pennsylvania reached 40,000 (with 95% of votes counted). With that unassailable lead he has secured more than 270 electoral college votes and will win the presidency when the results are formalised on 14 December. Biden is also leading in other swing states and is likely to win comfortably with a projected 306 electoral votes.
While Trump has launched a legal challenge to the results, he spent the weekend playing golf and doesn’t appear to be putting much effort into that fight. He would need to overturn the results in at least 3 States all of which Biden has won by more than 10,000 votes. In contrast George W. Bush won Florida by 537 votes in 2000. Tellingly, Rupert Murdoch has already moved on.
The important question is, what does this mean going forward?
Republicans will most likely continue to control the senate so they can block legislation, judicial appointments and other positions that require Senate confirmation. They can also launch investigations into the Biden Administration. Biden can use Trump’s playbook for how to get around these limitations.
The things that Biden can do are:
- Cancel Executive orders given by Trump.
- Issue new Executive orders.
- Make Acting appointments that do not require Senate confirmation.
- Influence the way that regulations are enforced.
- Ignore subpoenas from the Senate.
- Re-purpose budget funds (e.g. use funds for building the wall for something else).
He will not be able to reverse the Trump tax cuts or undertake any big programs unless he is able to do a deal with Mitch McConnell, the Senate Majority Leader. That seems unlikely.
The future of The Affordable Care Act (ACA) will be decided by the Supreme Court very soon. Republicans have a 6-3 majority on the Supreme Court but removing the ACA will put them under intense pressure to present their own Health insurance plan.
His number one priority will be getting the Covid-19 pandemic under control and it is expected that he will be relatively successful with this. A stimulus package which looks a lot more like Mitch’s plan than Nancy Pelosi’s plan will also pass.
Sharemarket Reaction
The sharemarket has gone up strongly based on these outcomes. It’s now at the highest point since February. The immediate outlook is good but the future is less clear.
It’s likely that Biden’s priorities will be supportive for Clean energy and not so much for carbon intensive industries. The market appears to be welcoming his approach to policy setting for now.
Pfizer also announced that their Covid-19 vaccine has shown a 90% success rate in phase 3 trials. This news was greeted very enthusiastically by investors.
China Relationship
Australia’s relationship with China is very poor at the moment and many of our exports have been shadow banned. The consensus view is that it is an attempt to economically coerce us into ending our security relationship with the US. Given China’s unwillingness to drop their ally, North Korea, it’s surprising that they think this is a realistic outcome.
Biden is unlikely to ride to our rescue as his leverage with China is limited. Other than launching a WTO complaint, there doesn’t seem to be any way to resolve this. Our exporters might be forced to diversify their markets significantly.
Our most important export is Iron Ore which is worth $100 billion per year. We produced 930 million tonnes of iron ore in 2019. Brazil produced 480 million tonnes. The next largest producer is South Africa on 70 million tonnes. China imported 1,060 million tonnes with the next two largest importers being the EU on 150 million and Japan on 125 million. Australian iron ore is cheaper to produce and ship to China than Brazilian iron ore.
China cannot reduce their imports of our iron ore without either a substantial reduction in Steel production or a large increase in prices. Their relationship with Brazil is even more fraught than their relationship with Australia. Unlike Scott Morrison, the president of Brazil, Jair Bolsonaro, has directly insulted China on multiple occasions. So, our Iron ore exports will likely continue at the same rate.
Tourism and education markets have already collapsed due to Covid-19 and will hopefully recover over time. It is agricultural exports worth $13.5 billion that are under threat. This is obviously devastating for farmers and other operators in those industries but the impact on the wider economy is likely to be limited given that this is less than 1% of our annual GDP.
Australian Stimulus Measures
Biden’s election result is not likely to make any noticeable impact on our economy. This means that we will need to drive our own recovery from the pandemic. The government has launched a significant and sustained effort to do this through a wide range of stimulus measures.
The main stimulus measures that are currently underway in Australia are:
- JobKeeper wage subsidies of up to $1,200 per fortnight per eligible employee.
- JobSeeker supplemental unemployment benefit of $150 per fortnight.
- JobMaker subsidies of up to $200 per week for new employees under age 35.
- Investment allowance 100% tax deduction for new equipment.
- Income Tax cuts.
- Official interest rate reduced to 0.1%.
These measures are less intensive than the Cashflow Boost and JobKeeper payments that were in place from March to September this year. They should be enough to keep the economy afloat for the next 6 months at which point the Covid-19 crisis may start to fade. Alternately the government can release new stimulus measures in the 2021/22 budget next May.