Say all you want about President Donald Trump, one thing you can’t deny is that the US economy soared under his reign – that is before the pandemic…
Prior to the pandemic the American GDP grew in a sound manner, the stock market reached record highs, unemployment rate fell drastically, wages continued to rise and poverty rates were comparatively very low. Donald Trump also successfully challenged the rising Chinese influence over the global economy by calling them out for their intellectual property theft. While Trump did tilt towards protectionist economic policies, it worked in the interest of the American people. His focus on deregulation helped American manufacturing operate at a higher level of economic efficiency.
President elect Joe Biden seems to have very different views from President Donald Trump on most socio-political issues, and his economic policies seem to be very different as well. So what will Bidenomics mean for America and the world?
Biden has a history of being a supporter of free trade, he has often described Trump’s protectionist policies as ‘reckless’ and ‘disastrous’. This brings to question whether Biden will get rid of protectionist policies after he has been sworn in. While the shift from protectionist policies to those revolving around free trade seem like the most probable step, there are political and economic restrictions that will not allow Biden to make the move quite so smoothly. The trade war with China was one of Trump’s most significant moves as president, and Biden has been criticised for taking it easy on China. While the trade war has disrupted global trade it is widely supported by the American population, hence pushing Biden to practice protectionist policies. While Biden will probably continue the trade war with China, he will propagate global cooperation with the rest of the international community. Biden claims that forming a coalition with allies and partners is a better strategy instead of the unilateral tariffs imposed by the Trump administration.
Biden’s plan to reverse Trump’s tax cuts on corporations has been championed by the leftists, but how effective is this policy going to be in its implementation? Biden’s tax policy wants to raise the top income tax rate to 39.6% from 37% and the top corporate income tax rate to 28% from 21%. This move will allow the government to collect a tax revenue of approximately $4 trillion by 2030. While this move sounds good on paper, its effective implementation has several obstacles. Corporates with major accounting teams and an army of lawyers have continued to find safe havens and loopholes in tax laws to legally avoid paying taxes. A tax hike of this rate also increases the probability of tax evasion and tax fraud, which will undoubtedly lead to the creation of a larger shadow economy. Additionally in a post covid world that has witnessed large scale unemployment, increasing taxes on corporations and high bracket earners is gonna push firms to cut costs, thereby creating disincentive for hiring. The increase in taxation may also push firms to switch gears and focus more on international markets such as Hong Kong or Singapore that offer lower corporate tax rates. While progressive taxation is ideally the way to go, the Biden government must ensure that its implementation takes into account all the limitations of the current system.
The Trump administration focused on deregulation in the manufacturing sector to ensure productive and economic efficiency, Biden on the other hand takes a different stand – promising to focus on sustainable development instead. Biden as part of his election campaign has released a 10-year, $1.3 trillion infrastructure plan. The plan aims to move the U.S. to net-zero greenhouse gas emissions. Bidens climate change plan in total will cost the US approximately 2 trillion dollars, and he aims to fund it by reversing Trump’s excess tax cuts on corporations and ending subsidies for fossil fuels. While Trump focused on short term economic efficiency, Biden’s plan is for the future. Switching to sustainable means of manufacturing is going to undoubtedly drive up costs for the American economy, but will also create middle class jobs and ensure environmental conservation. This move towards building sustainable infrastructure also displays that America will be joining the global fight against climate change, after Trump pulled them out of the Paris Accords.
Biden also aims to tackle student loans and flaws in the health care system through his economic plan, and has extensively criticised Trump’s approach towards the same. Biden aims to insure around 97% of the American people through his healthcare plan, and doesn’t shy away to take credit for the Affordable Care Act introduced by the Obama government. Biden also wants to cancel a minimum of $10,000 of student debt per person. He proposes forgiving all undergraduate, tuition-related federal student debt for low-income and middle class individuals (earning up to $125,000). Biden plans to fund this through the hike in corporate tax. The healthcare and student loan support by the government has been a campaign promise by almost all democrats including Elizabeth Warren and Bernie Sanders. Biden hence seems to be catering to his key demographic.
While Biden and America seem to be optimistic about these economic policies, it can be a cause for great concern if not implemented with caution. An increase in corporate taxation in the midst of an economic crisis can lead to tragic consequences for the American economy. Biden plans to fund sustainable infrastructure, stimulus packages, healthcare, and student debt through his tax plan, while the plan isn’t as optimistic as “Mexico will pay for it”, it still is somewhat overreaching. Even though some may be doubtful about whether Bidenomics will be successful for America, the reversal of the globalisation backlash that we witnessed in the last few years brings some hope for the international community.
Karantaj Singh finished his undergraduate in History and International Relations. He is now pursuing a minor in Media Studies and Politics during his time at the Ashoka Scholars Programme. He enjoys gaming and comics in his free time.
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