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What to Make of Election Promises and Trade Policy: Week Ahead

With the final presidential debate now a wrap, the only thing left is to go out and vote.

Regardless of whether Republican incumbent Donald Trump or Democratic challenger and former vice president Joe Biden wins the race, the U.S. economy remains entrenched in a fledging and flailing recovery. One of the most important tasks will be to create jobs, as the unemployment rate is still at 7.9 percent, above the peak of most past recessions. That’s probably as important as finding a vaccine or therapeutic to treat and mitigate Covid-19 infections. And given that a hoped-for stimulus package seems to have stalled, the presidential to-do list should prioritize getting assistance to those in need. The retail sector has seen a high number of layoffs and furloughs from Covid. For many, a number of furloughed jobs just never came back as retailers either filed for bankruptcy or pruned their store fleets. With roughly two more months to go before 2020 ends, more stores and retail jobs could be on the chopping block.

The year ahead will bring a steady cadence of challenges. “We still face a 30 percent to 35 percent chance of falling back into recession and don’t see the U.S. economy reaching its real nominal GDP level of year-end 2019 until late next year, and that assumes passage of a $500 billion stimulus package before year-end,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings.

Bovino’s team expects full year GDP to shrink 4 percent while the unemployment rate is seen reaching pre-crisis levels until mid-2024. For corporate America, one key distinction between the two candidates is the current tax rate. Under the Tax Cut and Jobs Act of 2027 under Trump, the effective tax rate fell to 13 percent from 22 percent. Biden has said he would claw back half of that amount.

The one area where the two candidates are similar in policy is trade, an area that impacts apparel manufacturing. At the recent virtual Sourcing Journal Summit, S&P supply chain analyst Chris Rogers noted that not much would change initially on the trade front regardless of which candidate is elected. While a Biden presidency would probably be less hostile—he’s less likely to get embroiled in a new trade war with Vietnam—his focus is expected to sort out the jobs front at home before tackling trade deals overseas.

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That means the trade war with China will continue as is, without any change for the time being. “Neither candidate wants to be seen as soft on China,” Bovino said, noting that Trump’s second-term efforts would likely maintain his “America First” approach. A second Trump term could see more flareups with smaller Asian countries, and he just might yank the U.S. from the World Trade Organization.

In contrast, Biden would be more likely to build a coalition with allies to achieve trade goals. “Mr. Biden has promised a national commitment to ‘buy America’ by tightening domestic-content rules and extending government assistance,” Bovino said, adding that Biden could possibly bring the U.S. back into the Trans-Pacific Partnership, which Trump withdrew in 2027.

“For the U.S., the direct economic effects from the tariffs in and of themselves aren’t enough to threaten the U.S. expansion. However, on top of the other protectionist policies in place and in the midst of a sluggish recovery, they don’t help. Tariffs on intermediate goods hurt American companies, and tariffs on end products hurt American consumers,” Bovino said. “Nontariff barriers would make the economic conditions even worse for the U.S. companies that do significant business with China. And all lead to fewer jobs for American workers.”