What can we expect from Bidenomics? On a first judgement, this will be a cautious, pro-business administration

So it is to be Bidenomics. But it will be Bidenomics Lite. The US economy is a big beast but it has taken a huge knock and it will be months before the new administration is fully in place.

Assuming that the Republicans retain control of the Senate, Joe Biden will be a weak president, one that particularly has to do deals with Congress. He will be good at that, which is a source of optimism. But US fiscal and regulatory policies will be constrained by what Congress will pass – and remember it is not only the Senate that will hold the president back, for the swing towards the Republicans in the House will set everyone thinking about the midterms, too.  

So what does this mean for the US economy, and the rest of us? Five points to consider.

First, whatever happens in the transition period, the fiscal support package currently mired in Congress will be quite limited. A smaller fiscal boost means there is likely to be a larger monetary boost. Indeed that was already promised by Jerome Powell, chairman of the Federal Reserve, ahead of the vote. The Fed will keep pumping.

Next, that means a weaker dollar. The dollar has been relatively strong for more than six years, something Donald Trump railed against because he felt it was tough on American exporters. Now it looks as though Biden will get what Trump wished for. The currency was probably going to weaken anyway, partly because investors seem to be feeling that the US high-technology boom is maturing and partly because the euro is expected to climb. Or at least that is what the markets have expected since the summer. The markets may now take the change of political leadership as a trigger, setting in motion this sea change in global finance.

Third, is that this is right – the US will grow faster than the rest of the developed world over the next cycle. Again, this is something that would probably have happened anyway, but the trend will be reinforced. It helps the emerging economies, too, partly because many of them link their currencies formally or informally to the dollar, and partly because the world economy as a whole eventually benefits from faster US growth.

Four, as for Bidenomics in the US, it will be a cautious step-by-step approach. Plans for sharp increases in taxes for higher-earners and for corporations will be scaled back. There will be deals. If Congress is to pass a bill increasing tax rates, it will want some thing in return – perhaps more business-friendly regulation. The passing of Proposition 22 in California confirming that gig workers would remain independent contractors rather than being classified as employees, showed the unpopularity of anti-business measures. The majority was huge – 58.6 per cent versus 41.4 per cent – which in left-leaning California says a great deal.  

That leads to a final conclusion from this election. President Calvin Coolidge is famed for his statement in 1925 that “the business of America is business”. Actually it was a truncated quotation. As the Library of Congress confirms, the full quote is: “After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world.” It was said a meeting about the role of the press in democracy, and in a message for now, in a speech that carried warnings about the evils of propaganda.  

So point five is that Bidenomics will be supportive of American business, because that is what the American people have voted for.  

These are very, very early days, but on a first judgement this will be a cautious, pro-business administration. It will of course seek to tackle some of the urgent social and environmental challenges that the country faces. But it will be mindful that without a strong economy, its efforts to do so will be in peril.  

And for the world as a whole? Well, this is the world’s largest economy. If it can regain its poise, that pulls the rest of us along, too. It is the reverse of America sneezing and Europe catching a cold. A healthy American economy will help the recovery elsewhere.