On a pre-Covid visit to the US last year, I was surprised and rather pleased when several Chicagoans engaged me in knowledgeable conversation about Jacob Rees-Mogg, John Bercow and Black Rod.
Turns out Parliament TV was a bit of a craze in the Windy City, where viewers were fascinated with the pomp, orotund diction and sheer Ruritanian spectacle of it all. For us, the American election holds much more than curiosity value. The US is the world’s dominant economy and our biggest single trading partner. We have big stakes in its recovery and who’s in charge. Wall Street exerts a big sway over our own FTSE 100. And investing directly in the US has looked very attractive this year.
Small investors in Britain who have been astute enough to put money into funds such as Scottish Mortgage, which specialise in US tech stocks, have made large gains. Received wisdom says Republicans are better for the economy and stock markets. True to form, President Trump warns that Democrats would destroy the economy.
Awakening: There is a view that a ‘Blue Wave’, with Joe Biden in the Oval Office and the Democrats in control, would be better for markets and the economy than Donald Trump
Yet some very surprising voices beg to differ. They include the chief economist at Goldman Sachs, an institution not known for its love of higher tax on the wealthy, which is top of the Democrat agenda.
Goldman’s view is that a ‘Blue Wave’, with Biden handed the keys to the Oval Office and the Democrats in control of the House and Senate, would be better for markets and the economy more than Trump. The negative impact of tax hikes and regulation, Goldman suggests, would be offset by a huge injection of state spending.
An assessment by Moody’s Analytics also suggests a clean sweep by the Democrats would be better for growth, jobs, corporate profits and stock markets.
Analyses like these can be wildly wrong. But President Trump has not fulfilled his bombastic claims in 2016 of ushering in the greatest period of growth ever.
In fact, the economy in his first three years underperformed the last three years of the Obama administration. Stock markets, which Trump incorrectly sometimes uses as a proxy for the US economy, have indeed done well. This is misleading, though, because the indexes have been skewed by the surge in tech shares, with mainstream American industries lagging behind.
As for Trump’s trade war with China, it has rattled the markets, and in any case has failed to narrow the trade gap. And his huge tax cut did not, as hoped, lead to an investment boom. Biden sees himself as someone who understands the ordinary worker, in contrast with the billionaire mogul looking out over Wall Street. He wants to raise corporate tax rates from 21 per cent to 28 per cent, and individual taxes would also rise.
This would, however, only affect very high earners on more than $400,000 a year and the rate would be under 40 per cent, less than our own top charge. Free-traders may be disappointed that Biden, like Trump, will probably take a tough stance on China.
By contrast, while Trump has been a climate change denier, Biden is planning a $2trillion investment in the green economy, which he says will create millions of jobs.
None of this may matter to Trump’s supporters, of course, and it would be unwise to write off the President. As that great American baseball player, Yogi Berra, is supposed to have said, ‘It’s tough to make predictions, especially about the future.’