After what was dubbed the most important political election in modern times, Joe Biden was finally declared President-Elect by US networks over the weekend. After the exhausting unpredictability of the last four years of Trumpism, a Biden presidency will have a far-reaching impact on global markets and economies.
What are the most likely implications for Australian small businesses and our economy?
As the world’s largest economy, the US is one of Australia’s largest and most significant economic partners, with over $76 billion in trade between our countries in the 2018-19 financial year alone. While some of Trump’s policies over the last four years may have indirectly disadvantaged some businesses, Australia has generally escaped unscathed as we were not directly subject to most of their trade barriers.
After Trump belittled many long-standing trade partnerships, some Australian companies gained an advantage over those in the US. As President-Elect Biden has promised to revive America’s alliances such as the Trans-Pacific Partnership, the reopening of markets would put US companies back on an equal footing which might see some Australian exporters displaced. Either way, there will still be many Australian small businesses that currently trade with the United States who will still be positively affected by a weakening US dollar.
The result of the US election looks like it could be the perfect outcome for the stock markets. President-elect Biden is likely to keep things steady while a Republican-controlled Senate will successfully block much of his proposed anti-business reform. Even President Trump’s threat of possible legal challenges will likely be dismissed by most investors, as they will be more focused on the renewed stability and certainty of a Biden White House.
President-Elect Joe Biden will also be seeking to invest in new energy to help stimulate the US economy out of the pandemic, which could lead to an increase in demand for some of Australia’s resources. Ultimately, stronger global market growth is good for our economy, because it makes Australians richer, who will in turn support our small businesses.
Economic tension will likely persist between the United States and China over the next 4 years, but the Biden team have been very vocal about wanting global allies on board, particularly regarding the competition they have with China. It certainly seems likely that a Biden administration will confront ongoing issues like these with much greater predictability and a heightened awareness of the variety of indirect effects they can have on their allies like Australia.
Before this year’s pandemic, the trade war between the US and China was easily one of the biggest factors that affected Australian businesses. But once the US returns to a more predictable system of globalised trading, it may inspire more certainty in our business dealings with China.
Biden has pledged to increase corporate tax rates from 21 percent to 28 percent for most firms. He also hopes to double the tax on global tech firms in order to prevent profit shifting, introduce a minimum tax of 15 percent for companies making over US$100 million in profits, as well as raising other taxes for the wealthy. Unfortunately, this would have an effect on any Australian companies who recoup major profits within the United States market.
These tax changes under Biden’s presidency could facilitate an increase in US investment in Australia. They may also benefit Australia politically by removing some of the pressure for our Government to lower our own company tax rate. But because Republicans look to retain control of the Senate, this will reduce the capacity of Democrats to introduce some of these far-reaching and progressive tax reforms.
The global economy and the success of Australian small businesses over the next few years will both ultimately be determined by how effectively the US controls their ongoing pandemic. Uncertainties over potential vaccines, fiscal stimulus, and second or even third waves, as well as what a Biden presidency will look like, are all likely to introduce moments of unpredictability and volatility into financial markets over coming months. And reopening international borders, especially with countries like the USA, is imperative for Australian businesses, as it brings money from both students and tourists back into our pockets.
Elections and American presidents come and go and businesses continue to trade more or less as normal. But no matter what the industry, the one thing that all small businesses want is certainty and stability. And with a Biden and Harris administration, that looks like exactly what we may soon have again.