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When it comes to the future of the American economy, does it really matter which candidate wins the presidential election?
Perhaps not as much as those who are running for election there and their campaigns want us to believe.
Because there are many varied influences on US trade, from the Federal Reserve, Senate, and House of Representatives, to internal and external crises like Covid, international trade conditions, global markets, innovation line and much more.
Despite this, however, there is little doubt that the political priorities of those who occupy the White House are very important and in this election cycle, perhaps more than normal.
Now that Joe Biden has been declared the next president of the USA, what kinds of economic and business developments can we expect, and what impact will they have on the Irish economy, your business / employer and your pocketbook?
Tax
When it comes to taxing companies, a Biden-led administration is not seen as making much of a difference from Trump’s, even in the area of international tax reform.
“Taxes were the only area of the type of multilateral negotiations that they did not withdraw from and it was the only area in which they were really engaged,” said Gerard Brady, Ibec’s chief economist.
“But his whole political position is that we are happy to make a deal as long as it doesn’t affect American companies, and if it is going to be something we don’t like, American companies have an opt-out.”
And Brady doesn’t see that position pushed by the Americans first change.
Keeping the US committed to the current OECD-led international tax reform process is important to Ireland, because we care about the success of the process.
If not, countries, including the US, will act alone in taxing companies, leading to a highly fragmented global struggle that would harm us, particularly the multinationals operating here.
On the home front, Joe Biden’s tax policy includes a plan to increase corporate tax from 21% to 28%.
If implemented, that could have a moderating impact on investment by American companies, including abroad in places like Ireland.
But without Senate Democratic control, getting those tax changes passed will be difficult, if not impossible.
As a result, experts consider change unlikely.
“What he does have as a real focus, and very similar to Trump, is an ongoing focus on the onshoring piece,” Brady said.
“I think it is probably the most important element from an Irish point of view that is of concern.”
Stimulus
While we often think of the US only in terms of investing in Ireland, the process goes both ways.
Ireland is currently the ninth largest investor in the United States and Irish companies employ 106,000 people there.
So we are very interested that the US economy is performing strongly.
Before the Covid-19 pandemic, he was doing reasonably well and it will be up to the new president to take care of and drive the recovery.
The United States government has already injected $ 2 trillion in stimulus into the economy.
But Biden is expected to seek to push another tax package of a similar size.
That could give a boost to Irish companies operating in the states, like building materials company CRH, for example, which has 22% of its revenue tied to US infrastructure spending.
However, it is unclear how that injection will be paid for, if President-elect Biden cannot convince a Republican-controlled Senate to raise taxes.
“I’m not sure we went from 1986 to 2016 to amend the tax code, Republicans will be quick to raise it again by as much as 7%,” said Feargal O’Rourke, managing partner at PwC Ireland.
“But you need to spend, and you need to raise money to pay for current activities.”
However, if the stimulus does not arrive and personal taxes in the United States rise, that could have a detrimental effect on the recovery of Irish tourism once travel restrictions are lifted.
IED
However, both stimulus spending and any attempt to raise US corporate taxes could have a side effect on foreign direct investment.
US companies account for 70% of FDI in Ireland, so a growing US economy after the pandemic will boost their global activities.
Talking about tax increases in the United States could also lead US multinationals to look elsewhere before investing.
“If they’re talking about raising the tax rate in the United States from 21% to 28%, that will not attract companies to return to the United States,” O’Rourke said.
However, the pandemic has shown how dependent the United States is on products, particularly pharmaceuticals, made by American companies in other countries like Ireland.
That may well put a Biden-led administration even more pressure on American companies to bring manufacturing, particularly in the pharmaceutical industry, home in the same way that Trump did.
“They both said they wanted to move things to the United States,” O’Rourke said.
“But it’s one thing to say. If you suddenly increase the tax rate by 7% and all these companies are integrated here … they are not going to be left behind just because someone asks them nicely.”
However, Mark Redmond, executive director of the American Chamber of Commerce in Ireland, is even more confident that American companies will stay here for other reasons.
A recent poll by the House of American Multinational Leaders here found that 56% think Ireland is a better place to invest today compared to 2015 and only 6% disagree.
“During the last nine months of this pandemic, corporate boardrooms in the States have seen their Irish operations in critical global supply chains like medical technology, pharmaceuticals, microprocessors and semiconductors, have been incredibly resilient and reliable,” said Redmond .
“Therefore, we believe that this extraordinary performance is actually a good place for Ireland’s reputation, within the boardrooms of the United States.”
This will be a big factor, thinks Redmond, if future pressure is put on American businesses to be more patriotic and bring jobs home.
The fact that Ireland is a rule-based democracy governed by consent is also widely recognized in American boardrooms, he added.
Commerce
Among other things, the Trump presidency has been characterized by trade protectionism, combativeness and toughness.
This has contributed to a contagion effect, leading to an increasingly introspective stance among many of the United States’ major trading partners, including the EU and China.
That position is expected to soften a bit once Biden enters the Oval Office, with a distinctive change in tone likely.
“From a European point of view, there will be better bilateral relations between the United States and Europe,” Brady said.
“There will probably be less trade tensions between the United States and Europe over bilateral trade. But I think that in the United States and China I don’t see much difference in their positions.”
“I think Biden will at least seek to return the United States to global bodies like the WTO,” said Feargal O’Rourke.
“He is a traditionalist when it comes to multilateralism.”
But experts say it is not a fact that the changing of the guard will see a complete reversion to the days before Trump took office and the removal of America First trade policy.
“Will we see a pre-Trump perspective that favors free trade or will we see that Trump’s legacy endures, that it is all about trade disputes?” asked Mr. O’Rourke.
“We are not out of the woods yet.”
Brexi
Arguably, the change of administration couldn’t have come at a better time when it comes to Brexit, with negotiations reaching a crescendo.
Biden has previously made clear that there will be no trade deal between the US and the UK unless the Good Friday Deal is protected through the Brexit process.
Now that he’s ready to become president, that position gains even more currency, narrowing the UK’s options in trade talks.
“They will be taking care of America first, but it helps if someone tells Boris and company, they have to fix the border,” O’Rourke said.
It can even help inject new impetus into the negotiations, which have floundered in recent weeks.
“Biden is much closer to that, he understands it much better and it will probably end up being a boost for us in terms of diplomatic negotiations,” Brady said.
Relations
Finally, there is the possibility that economic relations with the US administration will improve.
Ireland already enjoys unique access to the west wing of the White House each March, a tradition that continued with Trump.
However, the outgoing POTUS ‘economic ties to Ireland only extended to the extent of the cash generated by its golf hotel in Doonbeg.
But now, with a president sitting behind Resolute’s desk in the Oval Office who is immensely proud of his Irish ancestry, that access could improve.
“From an Irish perspective, we would be confident that the Irish will continue to open the doors in the corridors of power in America,” Redmond said.
And that could prove very beneficial at a time when a wave of spending, investment and growth is likely to unleash as the Covid-19 pandemic is expected to come to an end.
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