A Biden bounce?
– Written by Barry Flanagan
The changing of the US political guard has been broadly welcomed internationally, and by Irish commentators in particular. However, a Biden presidency may not have an immediate impact on Irish companies, writes Barry Flanagan.
Fans of Malcolm Gladwell’s Revisionist History podcast will know the answer to this one immediately: who is the only NBA player to score 100 points in a single game? LeBron James may have just won his fourth NBA Championship, but his career high is 61. Michael Jordan, widely regarded as the greatest of all time, once hit 69. The extraordinary Kobe Bryant sits second on the all-time list with 81 – 19 short of that magic 100.
I’m not sure how many NBA fanatics read Accountancy Ireland, so it’s probably best if I share the answer now – it’s Wilt Chamberlain, who achieved the feat back in 1962.
What is extraordinary about Chamberlain’s record is not just the number but, as Gladwell explains, how it was achieved. Chamberlain, a notoriously poor free-shot taker with a mid-40% success rate, had that season resolved to abandon the standard overhand free-shot technique used by all professional players. Instead, he used the underhanded or ‘granny shot’ method.
It worked. Chamberlain’s 28 from 32 that night (87.5% success rate) doubled his average and endures as the NBA record – which is what made Chamberlain’s next move so surprising.
Despite the new technique bringing him that historic record, the next season, Chamberlain went back to the old, inconsistent and trajectorially challenged overhand shot. Even though he knew it would cost him points and his team matches, he couldn’t stomach being seen as a “sissy”. The overhand technique was revived, and predictably his percentage dropped – perception over payoff.
Donald Trump used that same overhand technique that when throwing out paper towels to a bewildered Puerto Rican press corps in the aftermath of Hurricane Maria, which devastated the island. Just like Chamberlain, Trump was far more concerned about looking good than making a difference. In fact, handing out paper towels in the aftermath of a hurricane could be emblematic for Trump’s entire presidency: ineffective and often damaging policies, enacted without any real concern for consequences but with a very real emphasis on how he was perceived while implementing them. Protectionism is probably the best example from a trade perspective.
Protectionism and the pandemic
There is little doubt that Trump’s protectionism cost America economically, but the policy was never about winning. Imposing tariffs and bringing the US to the brink of a trade war with China over the last two years was always more about how it would be perceived by his supporter base than the economic benefit. ‘America First’ was the slogan that propelled him to The White House in 2016, convincing Rust-Belters that he could protect and regenerate industrial jobs. It also demolished the ‘Blue Wall’ and delivered Michigan, Wisconsin and Pennsylvania in the process.
Trump’s failure to fulfil those promises over the past four years is the reason those states flipped back. Whether that was because Trump’s tariffs rendered Chinese steel too expensive for rust-belt industries (Trump imposed tariffs on roughly three-quarters of everything China sells to the US) or because the COVID-19 pandemic swept away the economic gains of the last three years is moot.
The interaction of those two factors – protectionism and the pandemic – will shape American economic policy for the next two years at least. Those expecting a Biden administration to implement any quick reversals to US foreign trade policy will be disappointed. Several agents are impacting, with none at present favouring a dramatic swing.
For starters, students of Bidenomics will know that, like the candidate himself, pragmatism and prudence are valued over radical change. Biden has been an elected official for 47 years and like most career politicians, his innate inertia would counter any reactionary instincts. His tax plan seeks to raise taxes only on the top 2% who earn more than $400,000 per annum.
Second, and perhaps more pertinently, both his own and the Democratic party’s views on protectionism are far closer to Trump’s than outside observers may realise. Don’t be fooled by the toxicity of US political ‘debate’. Republicans mock the Democrats as being ‘globalist socialists’, but the Democratic party is well aware which side its bread is buttered on.
The Pew Research Centre revealed last year the depth of the consensus across the American political divide on this very topic. ‘Protecting the jobs of American workers’ was ranked as the second-highest bi-partisan priority out of the 30 options presented (only ‘preventing terrorist attacks’ is rated higher by the political establishment). Republicans and Democrats alike are keenly aware that their electability depends on both the perception and reality of protecting jobs.
Third, notwithstanding that he may not wish to change much in this regard, the likelihood of a Republican-controlled Senate may stymie any change Biden does want to make (we will know more after the Georgia run-offs in January). While it is true that presidential executive orders can be used to effect change unilaterally, any such orders will likely focus on the more polarising issues facing the US Executive such as the perennial battleground of healthcare, Biden’s own cause célèbre of renewable energy and, most immediately, the domestic stimulus package that has eluded agreement so far.
Lastly, as Biden and the impressive and progressive Vice President, Kamala Harris, clearly signalled in their victory speeches, getting the pandemic under control will be the first and only priority for the new administration. The administration’s focus will initially be internal, and Biden has pledged to avoid any new trade agreements “until we’ve made major investments here at home, in our workers and our communities.”
All of this provides Irish companies with little reason for optimism, but there will be opportunities in the Biden era. The renewable energy, infrastructure regeneration, and healthcare industries will undoubtedly benefit from this regime change, and further trade deals will eventually follow.
While Biden is by no means a globalist, the rest of the world can at least look forward to the Trumpian trend towards isolationism being halted with some moderate reversals deliberately deployed early. Biden has repeatedly stated his intention to re-join the Paris Accord on his first day in office. He has also indicated his intention to re-join the World Health Organisation, which Trump distanced the US from this year. Although Biden may reverse travel bans on Muslim countries and enact some degree of immigration reform, meaningful progress in these areas will depend on Republican consent, which will be hard-won.
From an Irish perspective, a particular area of interest will be the US corporate tax rate and any potential changes to US tax policy. Trump targeted tax inversion by US companies that relocated internationally by dramatically cutting corporate tax from 35% to 21% back in 2017, effectively eroding the delta a company gained by shifting its headquarters to Ireland to take advantage of the country’s 12.5% rate. Biden has proposed raising the corporate tax rate back up to 28% from 21%, reversing half of Trump’s cut.
Such a move would again increase Ireland’s attractiveness as a destination for foreign direct investment, but it would be unwise to expect too much too soon. Tax reform in the US is notoriously slow. Trump’s Tax Cuts and Jobs Act was probably his signature accomplishment, but the parties had broadly agreed the basis for it before the 2016 election. A reduced corporate rate would therefore have been delivered in any event, regardless of the election’s outcome.
Brían O’Cuiv, Tax Partner at PwC San Francisco, foresees opportunities for Irish companies independent of tax reform. “The reality is that US companies continue to be among the most innovative in the world. And with a seemingly endless supply of venture funding available, we will see new businesses with global ambitions emerge,” he said. “Irrespective of any changes to the US tax system, companies will need to establish operations overseas to access foreign markets and tap into the local knowledge base. Jurisdictions that position themselves as an attractive location for inward investment and provide some degree of certainty are likely to continue to benefit disproportionately from this trend.”
Finally, once he assumes office on 20 January 2021, President Biden’s close ties to Ireland will at least deliver the perception of increased opportunity, even if his control over the payoff is not as strong as Ireland Inc. would like it to be.
Ireland and Biden
In 2016, Biden wrote in his ‘Letter to Ireland’ that “When I die, Northeast Pennsylvania will be written on my heart. But Ireland will be written on my soul”. A testament to this close relationship is the fact that An Taoiseach, Micheál Martin, was one of the first political leaders Biden contacted after his projected win. During their 20-minute call, they covered the global economic recovery, relations with the EU, and tackling climate change. Most tellingly, they also discussed the importance of a Brexit outcome that respects the Good Friday Agreement and ensures no return of a physical border on the island of Ireland.
Ireland’s profile will benefit exponentially from having a US president that is favourably disposed to the country, which Trump most certainly was not. The annual St Patrick’s Day summit in the White House may not restart until 2022, and a presidential visit to Ireland is unlikely before 2023. That said, the negativity towards Ireland will cease almost immediately and in terms of Brexit, to use Biden’s favourite quote from Yeats, “all changed, changed utterly”.
Cummings and goings
The next few weeks will tell more, but it is already possible that almost two months before he has even been sworn in, we may have already witnessed the first effects of a Biden presidency on the global stage.
The UK Conservative government courted Trump shamelessly and desperately hoped that a Republican-controlled government could deliver the holy grail of a US/UK trade deal. They hoped that it could be achieved in advance of any EU deal and sold to the British public as a significant victory. That hope has been utterly dashed.
The resignations of Dominic Cummings and Lee Cain may signal a seismic shift in the UK’s Brexit strategy. Cummings had served as campaign director of the ‘Vote Leave’ campaign in 2016 and is credited with the memorable (if potentially misleading) slogan, “Take back control”. Cain had been tipped as Johnson’s next chief of staff, an important position as it would effectively have given Cain control over access to Johnson. Their departure may be the most immediate macro consequence of Biden’s election on the global economy.
The likelihood now is that Johnson and Britain will be forced back to the negotiating table with the EU. At the time of writing, the chance of a last-minute UK/EU deal had increased, and this may be the most immediate payoff from Biden’s presidency. In terms of how that presidency might benefit Ireland, it might also be the most important.
The importance of the Georgia run-off
While the US waits for President Trump to accept the results of the presidential race, the focus of the political world has already shifted to Georgia where two run-off elections set for early January will determine which party has control of the Senate. The current state of play is 50-48 in favour of the Republicans, so the Democrats must win both to draw level.
The result of the contests, which will take place two weeks before Biden’s inauguration, could lead to two distinct outcomes. On the one hand, two Democrat victories could re-centre power to the Democrats by giving Harris, as the new vice president, the casting vote. This would provide Biden with broad power to carry out his policy agenda and push through nominations as he sees fit. On the other hand, a Republican win could cement Republican control, thereby allowing Mitch McConnell to remain as Speaker with the power to continue his policy of obstructionism that was so effective during President Obama’s second term.
Georgia may have flipped Blue for the first time in 28 years, but the margin of victory was a tiny 14,000 votes or 0.3% of votes cast. Accordingly, anticipating a double defeat for down-ballot Republicans who outperformed Trump is not advisable.