Economist: A Trump presidency might make a Brexit deal easier, while a Biden will cite concerns over the Belfast Agreement
Result day for the American Republic.
Or so it would be normally.
It is not yet established this morning whether Donald Trump or Joe Biden won yesterday’s election,
Where Mr Trump prevails or Mr Biden does, there will be significant economic consequences for us.
Here are some scenarios:
• No clear winner, disputed
There have been some very close elections before, eg Kennedy-Nixon 1960 and Bush-Gore 2000, but the results were eventually generally accepted. This time round there is the possibly nightmarish scenario where no one concedes.
Government slows down for a prolonged period. Previously we’ve seen US budgets stalled and shut downs of much of the public services but this could be worse. Buildings have already been boarded up in the centres of major cities in anticipation of street disorder.
If you think the world economy works best when there is a single leader country and that the US performed that role fairly successfully and generously during the 1945-71 period and to a lesser extent since then, then paralysis at the heart of US government will ultimately effect the rest of the world economy including Northern Ireland (NI).
• Trump win
He would probably try again to pass a new economic stimulus package. However, the likelihood is that a (narrowly) re-elected President Trump would not have sufficient support in Congress to do this.
In any case, it is not clear that his previous attempt at macroeconomic stimulus (the income tax cuts after 2016) had all that much effect in terms of permanently raising the US growth rate: during 2017-19 US economic growth (GDP per capita; as measured by the IMF, October 2020) grew by average of 1.9% compared to 1.6% annually during the final four years (2013-16) of President Obama.
It has been argued that Trump would be more likely to facilitate at post-Brexit US-UK free trade agreement (FTA). However, negotiating a deal with an ‘America first’ administration will not be straightforward.
In any case, it is far from clear that US-UK FTA could actually include NI given that under the terms of the EU Brexit Protocol we are obliged to maintain EU rules and regulations (particularly in the area of food standards and animal health, the SPS standards, which is one of the areas where the US would be likely to be insisting that the UK moves to permit American imports which follow US standards).
During the Trump presidency NI has already been caught in the back wash from US tariff policies. As part of the retaliation for the level of subsidy which the WTO identified had been given to the European plan manufacturer Airbus, in 2019 the US applied a 25% tariff on Scottish whisky and NI whiskey (Though, so far, Republic of Ireland made whiskey remains exempt. Perhaps unsurprisingly during 2018 and 2019 Irish whiskey sales to the US increased by one-quarter).
At one point it looked like Bombardier planes being imported into the US would be subject to punitive taxes but fortunately that was thrown out in the courts.
• Biden win
A newly elected President Biden may also have sufficient support in the Congress to push through a $1,000bn stimulus package in early 2021. One estimate is that could push US growth up from a “normal” 2% to about 5% (Oxford Economics). NI and other economies exporting to America would benefit from the expanding market.
Biden’s rhetoric, eg about protecting (his interpretation) of the 1998 Belfast Agreement might make a UK-US FTA more difficult.
That said, if he delivers on commitments to consider US participation in a Trans-Pacific Partnership free trade arrangement the UK may be able to align with that and so get better entry to the US market by the back door.
Ironically, the greatest effect of the US election result on NI could be through unintended consequence. If Biden wins and if he does implement proposed Corporation Tax increases to 28% (from Trump’s 21%, they had formerly been 35%), the NI location suddenly becomes a lot more attractive to US firms.
• What stays the same regardless of who wins?
At least three things:
The economic relationship with the US will remain vitally important to the NI economy. In 2020 there are 220 American owned businesses in NI and these employ about 33,000 people (that includes the roughly 3,000 employees of the former Bombardier recently taken over by Kansas HQ-ed Spirit AeroSystems).
The most important “external” investor in the NI economy, employing about 4% of the total workforce, after GB and the Republic of Ireland. NI business sales to the US are about £1.2bn — our second largest export market (after the Republic).
Although Trump talks about “make America great again” and Biden proposes a $4,000bn transformation plan it is far from clear either have the recipe to raise the long run growth rate of the US economy.
This is because both contenders tend to emphasise short term measures to raise spending in the economy- these may have little effect on the slow rate of productivity growth which has been in the doldrums for decades (the UK and NI, similarly, have had relatively low rates of growth of productivity for some time now).
If the US continues to find it hard to improve its education and training system or innovation in order to improve productivity that will probably also make it harder for other Western economies including NI to make similar improvements.
Although the US remains a rich country and a superpower, relative economic decline has been going on for decades and today’s vote is unlikely to change that.
Back in 2014 China over-took the US to become the world’s largest economy in size of GDP terms (This is according to the best method of making such international comparisons, common price or Purchasing Power Parity terms. Given that China’s population is about 1,300m and the US’s about 300m it remains the case that per person the amount of GDP in the US is several times higher than that in China).
Throughout the administrations of both Obama and Trump China’s growth rate remained several times higher than that in the US.
Given the recession associated with Covid China continues to power ahead: the IMF forecasts 2% growth this year compared to a 4% decline in the US.
The debates within the London government about 5G and Hauwei and about Chinese investment in the UK nuclear power sector are significant because they point to a future where we will face difficult choices about which economy and which state to align to, China or the US.
• Dr Esmond Birnie is senior economist Ulster University Business School
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