SIM Report: North America, Issue 9

United States: The commercial and geopolitical implications of the US presidential election

On 7 November, the 2020 US presidential election was called in favour of Joe Biden of the opposition Democratic Party. The verdict came after media networks projected his victory in the crucial swing state of Pennsylvania, allowing Biden to cross the threshold of 270 electoral votes required to win the electoral college. While President Donald Trump has acknowledged he lost, he has not yet conceded defeat and has alleged electoral fraud. These claims have been widely disputed and are the subject of multiple legal challenges. Internationally, however, leaders have recognised the results, and Biden has held calls with at least eight world leaders.

While Biden secured enough electoral college votes to win the presidency, the outcome was neither a ‘blue-wave’ landslide for the Democratic Party, nor an outright rejection of Trump. Indeed, Trump secured over 9 million votes more than in 2016, when he won the electoral college. This close outcome is also reflected in the congressional elections, where the balance of power has barely shifted. The Republicans remain in poll position to retain control of the US Senate, although this depends on winning 1 of 2 Georgia run-off races in January. The Democrats, meanwhile, have kept control of the House of Representatives but with a reduced majority.

As the US has the world’s largest economy and military, with extensive corporate interests worldwide, its presidential elections have significant implications, both domestically and overseas. This report analyses these implications, beginning by focusing briefly on domestic affairs before looking at the impact of Biden’s victory on five world regions: the Americas; Asia-Pacific; Europe and Russia; the Middle East, North Africa and Central Asia; and finally Sub-Saharan Africa.

Domestic implications

Domestically, Biden’s win has significant consequences for governance as well as the coronavirus pandemic. An important determinant of the effectiveness of the incoming government is whether or not the Democratic Party can regain control of the US Senate. This is as the upper house has the authority to ratify treaties, confirm senior government officials and judicial nominees, as well as initiate, deliberate and vote on new legislation. The Democrats will only regain control of the Senate if they can win two run-off elections in the south-eastern state of Georgia, set to take place on 5 January. If they fail to do so, Biden may struggle to get some cabinet nominees through the upper house and pass important legislation. Biden’s first actions after being sworn-in on 20 January 2021 are likely to include rapid reversals of some of Trump’s policies most heavily criticised by the Democratic Party. These include re-joining the Paris climate accord and the World Health Organization (WHO).

Biden’s administration is set to take a new approach to the COVID-19 pandemic. This includes boosting testing by doubling the number of drive-in testing sites, using the Defense Production Act to ramp up supplies of PPE, and mandate the use of face coverings on federal property and encouraging every governor to make it mandatory in their state. On the economy, Biden has pledged to rapidly pass a COVID-19 stimulus package, likely including direct cash relief to US citizens, financial support for small businesses, and fiscal relief for states. Biden also proposes raising corporate taxes and income tax on those earning above USD400,000 per year, in addition to increasing the federal minimum wage from USD7.25 per hour to USD15 per hour. Other proposals include spending USD2 trillion on clean energy infrastructure over the presidential term, as well as a USD700 billion ‘Buy American’ plan to boost domestic manufacturing and innovation. Finally, Biden’s administration plans to work with international allies to confront hostile trade practices, particularly committed by China, including intellectual property theft (IP) and cyberattacks targeting commercial entities.

International implications – Americas

Under Biden, the US government is likely to take a different approach to Latin America’s most left-wing governments, particularly in Venezuela, Cuba, and Nicaragua. US foreign policy towards these countries under Trump has been marked by the repeated imposition of sanctions on government officials and state-run businesses, however Biden is likely to take a less confrontational approach. The incoming administration is likely to prioritise good trading relations with Mexico and Canada based on the USMCA trade pact signed under Trump. In particular, Biden’s administration is far less likely to impose tariffs and trade restrictions on products from the US’s immediate neighbours to the north and south, and is likely to expand the number of H1-B visas for skilled workers available each year. Given Biden’s less transactional approach to trade and relative openness to immigration, bilateral relations with Mexico City and its leftist president Andrés Manuel López Obrador are likely to improve substantially. Relations with Brazil and the government of far-right President Jair Bolsonaro, however, are set to worsen considerably, amid vast ideological and policy differences.

Asia-Pacific

Regarding US-China relations, an immediate reset in relations is unlikely due to broad bipartisan support for a tough stance on China. With regards to Japan, a Biden presidency may see enhanced security cooperation, in response to growing regional threats to Tokyo, including by China and North Korea. Both Japan and the US are likely to continue increased engagement with Southeast Asian countries, a strategic battleground between the two allies and China. In terms of the Korean peninsula, a Biden administration may ease or even withdraw from previous demands on Seoul to increase its financial contributions towards hosting the US military presence in South Korea. Conversely, relations between Washington and Pyongyang may cool as Biden lacks the relatively amicable relationship with Kim Jong-un that Trump maintained under his administration.

Europe and Russia

In many ways, a Biden presidency promises to re-invigorate transatlantic relations. Indeed, Biden knows many European leaders personally and has reiterated the US commitment to multilateralism when responding to global challenges. Importantly, a move away from the ‘America First’ agenda will help instil greater confidence in some of the US’s closest allies. On US-EU trade relations, a de-escalation of recent tensions should be expected. Biden has strongly opposed Trump’s tariffs on China, which he has described as self-defeating due to their adverse impact on US workers. Advisers close to Biden have also said the president-elect had promised to end Trump’s ‘artificial trade war’ with European countries. One thing that will likely remain constant is US pressure on NATO allies to meet the required 2 per cent of GDP threshold. Biden has also indicated his intentions to enhance NATO’s military capabilities and expand its response to non-traditional threats, including tackling disinformation and cybertheft.

MENA and Central Asia

In Israel, the US will shift away from its strong advocacy and support of Israeli policy and re-establish its role as a broker rather than a one-sided advocate. Given Biden’s public support for the Abraham Accords, it is likely that further normalisation agreements will be pursued, albeit with the possible inclusion of preconditions favouring Palestinian interests. Relations with Saudi Arabia are set to cool due to the US repositioning on the kingdom’s domestic and foreign policy, particularly on areas including Riyadh’s role in the Yemen war and its human rights record. However, given Saudi influence in the region and longstanding military and economic relations with the US, a full-scale termination of US-Saudi defence ties remains unlikely. On Iran, there is strong potential that Biden will seek to re-join the 2015 JCPOA nuclear agreement, which Trump exited in 2018. This process, however, will be drawn out with potential Iranian demands for financial compensation over the impact of US sanctions. In the short-term outlook, sanctions against Iran will likely continue up until 20 January when Trump’s presidential term is set to end.

Sub-Saharan Africa

US policy in Africa is unlikely to significantly change under Biden, due to bipartisan support in both house of Congress. Trump’s headline policy moves with regards to the continent include the delisting of Sudan as a state sponsor of terrorism, the launch of trade talks with Kenya, and the so-called Muslim ban which restricts inbound travel to citizens from seven Muslim-majority countries, including three in Africa. Biden has said he will reverse the travel ban once he assumes office. Although the Biden-Harris campaign has announced an intention to place more focus on security and democracy, trade and investment will likely remain key pillars of US Africa policy over the coming four years. The continued macroeconomic impact of COVID-19 will likely also be a determinant factor for US Africa policy, and the roll-out of mass vaccination programmes may become a potential cause for tension.

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