US politicians seem to be in permanent campaign mode. But now the race for the White House has started in earnest. While the Democratic and Republican party conventions only take place in July, President Joe Biden and former President Donald Trump are virtually assured of being nominated, barring any upset in the myriad legal proceedings that Trump currently faces. That sets the US up for a repeat of the 2020 contest, the first presidential rematch since 1956.
As always, business executives around the nation will be asking what the outcome might mean for them. History suggests that answering this question is far from straightforward. A recent analysis from Bloomberg showed that clean energy stocks lagged the S&P 500 in the year after Joe Biden won the 2020 race – despite his enthusiasm for green energy. And predictions that his presidency would spell disaster for oil and gas drillers has proved equally wide of the mark, with US crude output hitting a record high. This is no aberration. America’s top defence stocks trailed the broader market in the year after Donald Trump’s 2016 win, despite the Republican enthusiasm for national security spending.
Biden has taken an increasingly dim view of business concentration and potentially abusive practices
Regulatory implications
So, what could be the main implications of a win by the Republicans or Democrats?
It makes sense to start with the areas where presidents have most sway. Even without a majority in Congress, President Biden or President Trump would enjoy considerable discretion in business regulation and trade.
Starting with regulation, Biden has already indicated that he would use a second term to impose stricter controls on companies, with the potential to add headwinds for the energy, healthcare and financial services sectors. Most recently Biden has indicated his desire to bring down drug prices; he has also taken an increasingly dim view of business concentration and potentially abusive practices.
Trump has focused especially on the energy sector, where he has said he wants the US to ‘drill, baby, drill’
Under his presidency, US authorities have been investigating a wide range of possible malpractice by companies such as Apple, Visa and concert promoter Live Nation. Biden has also been more resistant to mergers and acquisitions that have the risk of creating companies with excessive market power. For example, authorities are investigating the roughly US$10bn acquisition of sandwich chain Subway by private equity firm Roark Capital, which already owns rivals Jimmy John’s and Arby’s. While this policy slant from Biden might be expected to be unpopular with businesses, executives at smaller and mid-sized firms could benefit from tighter controls on larger competitors.
Energy focus
Trump’s policies on these issues are pretty much the opposite of Biden’s, with the former president promising lighter touch regulation. He is also likely to take a more permissive approach to corporate tie-ups. Notably, Trump has focused especially on the energy sector, where he has said he wants the US to ‘drill, baby, drill.’ An analysis from energy consultancy Wood Mackenzie suggests that Trump could also remove bans on ecologically questionable practices such as routine flaring of gas at a new well, as well as removing the requirement for companies to monitor for methane leaks.
Either candidate would require a majority in Congress to make any dramatic tax policy shifts
In practice, many companies may wish to stick to existing environmental practice anyway due to a sense of ethical obligation, or to avoid criticism from shareholders or customers.
Common ground
On trade and tariffs, the two candidates have more in common – with both concerned over relations with mainland China. A hallmark of Trump’s first term was trade protectionism in general and an escalation of trade tensions with China in particular. Trump has indicated he would redouble this effort if given a second term, with a blanket tariff of 10% on all imported goods and of ‘more than’ 60% on China.
While Biden has kept in place many of the tariffs imposed by Trump administration, as well as restricting Chinese access to cutting-edge US technology, his approach has been – and would likely continue to be – to forge international alliances to address alleged trade abuses rather than imposing a slew of new tariffs unilaterally.
Tax shifts
Then there are taxes. On this issue, either candidate would require a majority in Congress to make any dramatic policy shifts. But in the event of a clean sweep of power, Biden has floated plans to raise the corporate income tax from 21% to 28%. He has also said he would aim to raise the corporate minimum tax rate – which only applies to firms reporting over US$1bn in profit – from 15% to 21%.
A looser fiscal policy would likely be a modest net stimulus to economic growth, helping consumer demand
By contrast, a Trump victory, if supported by a Republican majority in Congress, could mean reductions in corporate income tax. A clean sweep of power would also allow Trump to extend tax cuts that his administration introduced in 2017 and are set to expire at the end of 2025. These included reductions in the tax rate on income as well as estate tax on inheritances. This, too, could be a mixed bag for businesses; a looser fiscal policy would likely be a modest net stimulus to economic growth, helping consumer demand.
But this would also have the potential to limit how far the Federal Reserve could cut interest rates. That would be a drag on more indebted companies, especially small-cap firms, which tend to be more reliant on floating rate debt. The mix of looser fiscal and tighter monetary policy is also typically positive for the US dollar, which would add a headwind to exporters.
Much can happen between now and November. Another lesson from history is that candidates who lead in the polls in March, April, May – or even into the summer – don’t necessarily win the race. However, with the stakes so high, it will be hard for business executives watching every twist and turn of the contest.
