Depec Highlight - Bradesco - Economia em Dia
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Depec Highlight – Bradesco
November 18, 2020
The transition and the future Biden administration
Constantin Jancsó
The Biden administration’s top priorities will likely be controlling the pandemic and
economic recovery. The electoral climate will likely to linger until the runoff of the
Senate election in Georgia, which will determine which party will control the Senate,
but Republicans appear to be at an advantage. Distributing vaccines to contain the
pandemic will be the new administration’s priority. Issues related to the environment
and reducing carbon emissions will also likely gain importance in the Biden
administration’s agenda and could play an important role in trade and diplomatic
relations with Brazil. The likely Republican control of the Senate will probably curb
initiatives by the Democratic party that significantly alter the current business
environment, but issues related to infrastructure investments may be a point of
convergence.
The electoral climate may persist until the runoff election in Georgia
The U.S. election was tighter than the polls indicated. In the national vote, the polls
pointed to Biden lead of about 10 percentage points, while the effective result was closer to
4. Despite Biden’s more comfortable victory in the Electoral College (306 to 232, pending
certification of results by the states and the Electoral College’s own vote), the state polls
used to predict the Electoral College pointed to wider margins than those observed in the
ballot box.
Although President Trump has not yet recognized Biden’s victory (he is expected to
wait the outcome of the litigation in the courts), the Democrat informally began1 the
transition process to be sworn in as 46th President of the United States on January 20, 2021.
States must now certify the results (between November 5 and December 11, depending on
the state, the last of which is California, on December 11) and have until December 14 to
nominate their delegates to the Electoral College, which will meet on that date to vote.
Finally, Congress will meet on January 6 to receive the votes from the Electoral College and
proclaim the result of the presidential election.
Biden won, but the Republican Party did better than expected down the ballot.
Although the Democrats took the presidential election, the party came short relative to
what it had hoped for in the other elections. In the House, Democrats expected to increase
their majority established in the 2018 election (233 to 202). Prior to the election, Democrats
had 24 seats in districts considered vulnerable, compared to 37 vulnerable seats for
Republicans. Counting in some districts still have to be finalized, but the results thus far
suggest that Democrats could lose up to 10 seats. Democrats would still maintain the
majority, but tighter than before.
1 The transition formally begins when the election results are recognized by the General Services Administration – a
government administrative body that releases the use of offices, financial resources for the transition team, and allows
communication between the President-elect’s advisors and the government.
Departamento
Macroeconomic
de Pesquisas
Research eDepartment
Estudos Econômicos
1DEPEC Highlight – Bradesco
In the Senate, the most likely scenario is that Republicans will retain the majority.
Democrats were expected to lose a seat in Alabama (which has been confirmed). Therefore,
to take the majority of 50 seats (out of a total of 100 seats, and considering that in the event
of a tied vote, the vice president-elect is the honorary president of the Senate and gets to
decide a split vote), the Democrats had to flip at least 4 Republican seats. It seemed a likely
outcome, as Democratic candidates led the polls in at least 6 states. However, the Democrats
succeeded in flipping just two seats (in Colorado and Arizona), with a net gain of just 1 seat.
They still have the opportunity to reach 50 if they win both runoff races in Georgia at the
beginning of the year (see below).
Democratic expectations were also partially frustrated in local elections. In net terms,
they lost a governor to the Republicans and failed to increase the number of state
legislatures controlled by the party. The latter is particularly relevant since 2020 is a census
year, which means that state legislatures will have the opportunity to redefine the boundaries
of Congressional districts. Historically, this is a mechanism used by parties to maximize the
number of seats obtained in each state (in a way, instead of voters choosing politicians, the
system allows politicians to choose their voters).
Overall, the results suggest that most republican voters continued to support the
party. In other words, a significant number of republican voters chose Biden for president,
but voted for Republican candidates for other positions. The fact that the American elections
had the highest turnout in the last 100 years reinforces this perception that despite having
lost the presidency, the Republican party remains competitive. If it is true that Joe Biden has
become the most voted American politician in history, it is also true that President Trump is
now the second most voted politician in history (directly behind Biden).
This suggests President Trump will continue to play a key role in U.S. politics in the
coming years. His contribution to the party’s performance in the elections is debatable, but
the possibility that Trump could be a candidate in 2024 and his strength with the base of the
party will keep him in the spotlight.
The electoral climate is likely to linger until the runoff election in Georgia,2 as Senate
control is still at stake. In the event of a Democratic victory in the two runoff elections on
January 5, the party would tie the Republicans in number of seats in the Senate, taking control
of the Senate.
2 Each American state determines its electoral rules and the law in Georgia determines that for state elections, if no candidate
receives 50% of the vote, the two most voted candidates must face each other in a runoff electons. Another unusual aspect of
the 2020 election in Georgia is that two Senate seats were at stake. In addition to the election to renew Senator David Perdue’s
six-year term, the state is holding a special election to complete the term of former Senator Johnny Isakson that runs until
2022. Isakson resigned at the end of 2019 for health reasons and Senator Kelly Loeffler was appointed by the governor to fill
the vacancy until the special election could be held together with the general election. Unlike a regular election, there are no
primaries for a special election, allowing for multiple candidates from both parties. In addition to Loeffler, there was another
Republican candidate and 3 Democratic candidates, and the division of votes suggested a runoff election was likely. The
surprise came from the fact that no candidate obtained 50% in the regular election, leading to runoffs in both Senate elections
in Georgia, to be held on January 5.
Departamento
Macroeconomic
de Pesquisas
Research eDepartment
Estudos Econômicos
2DEPEC Highlight – Bradesco
The Republicans begin the runoff campaign in Georgia with a certain advantage. The
state is traditionally Republican and President-elect Biden received about 100,000 more votes
than the Democratic candidate in the regular Senate election (where each party had only one
candidate), suggesting that Republican voters chose Biden, but not the candidates for other
positions. However, the election remains undefined and the outcome will likely be determined
by which party mobilize its base best and delivers the highest turnout of its voters.
Transition and prospects for the new government
The electoral dispute in Georgia may make the path for a new fiscal stimulus package
more difficult. The need to mobilize voters for the runoff election there could become an
incentive for parties to stick to their positions and avoid compromises, repeating the pattern
seen before the November 3 election. While news of a worsening pandemic could increase
the sense of urgency and lead senators to seek a common denominator, caution is advised
when considering the odds of a new fiscal package before the end of the year.
For the same reason, any more controversial appointments to the cabinet are also
likely to be postponed until after the Georgia election.
The pandemic, which was the main theme of Biden’s campaign, will likely be the main
priority for incoming administration. Major media outlets officially projected Biden’s
victory on the Saturday after the election, and on the following Monday, the president-elect
already announced a task force of public health experts (many of whom served in the Obama
administration). Since the formal transition has not yet begun, this team is not yet in contact
with the Task Force led by Vice-President Pence, responsible for managing the Trump
administration’s response to the pandemic. Instead, the taskforce established by Biden has
been talking to state governments and private companies involved in the development and
production of vaccines, tests and protective materials. For the time being, this team will likely
focus on recommendations on matters such as the use of masks and other behaviors that can
reduce the transmission of the virus.
After January 20, the focus will shift to coordinating logistics for the production and
distribution of vaccines as they become available. As Biden himself has already stated, the
focus tends to shift from the vaccine to vaccination.
For the rest, the Biden administration’s agenda will likely depend on who controls the
Senate after the Georgia election. If Republicans retain control of the Senate, there will be
little room for the government to substantially change the current regulatory and business
environment. There will certainly be no reform of the judiciary or the universalization of
health care and issues such as raising corporate taxes (Biden promised to reverse the tax cuts
implemented at the beginning of the Trump administration) and personal income taxes (the
promise was that only families with incomes greater than USD 400,000 a year would be
affected) will face Republican opposition.
Departamento
Macroeconomic
de Pesquisas
Research eDepartment
Estudos Econômicos
3DEPEC Highlight – Bradesco
Environmental regulation and climate change will likely be another key issue for the
Biden administration. Some aspects of the agenda discussed during the campaign, including
the adoption of more aggressive emission limits, depend on congressional approval, and
therefore, on the Senate. Other aspects are the responsibility of the President, such as a
return to the Paris Climate-Change Agreement (already signaled by Biden during the
campaign) and interrupting of the process for the U.S. to leave the World Health
Organization.
Foreign Policy and Trade Policy, in general, are the responsibility of the President in the
USA, with the exception of international treaties, which require congressional approval. In
that regard, as part of a reengagement effort with the multilateral diplomatic system, the
Biden administration is expected to stop blocking the appointments of judges to the World
Trade Organization Appellate Body. Currently, this entity does not have the minimum quorum
of judges, which means that the WTO’s arbitration system is paralyzed.
The trade war with China is not expected to end anytime soon, but may cool . One of the
few consensus between Democrats and Republicans in American politics is the discomfort
with the bilateral relationship with China. Biden has harshly criticized China throughout the
campaign and the tariffs imposed during the Trump administration are unlikely to be
unilaterally removed by the new president. To the contrary, several statements by Biden
during the campaign suggest a more protectionist bias and the removal of tariffs currently in
effect will likely depend on Chinese concessions on issues such as intellectual property.
However, expectations include greater predictability in American actions, a less noisy
dialogue through traditional channels and engagement with other countries in multilateral
negotiations, all of which may help reduce tensions.
It is likely that human rights and environmental and climate change/emissions control
will become increasingly important in the United States’ bilateral relations with other
countries. In a presidential debate, Biden even mentioned the control of fires in the Amazon
as being a topic of interest for the United States (even suggesting that he would be willing to
help finance projects in this regard), which suggests that this issue will become increasingly
important in Brazil’s trade and diplomatic relations with the U.S.
Infrastructure investments may be an issue on which some consensus in the Senate is
possible. Promoting economic recovery and job creation will certainly be a priority for the
Biden administration. The reopening of the economy with the distribution of the vaccine will
be a central element in this process, but even during the Obama administration, Biden was in
favor of major public works programs as a means of supporting growth. He supported
measures to this effect after the 2008 crisis (the Obama administration prioritized issues
related to financial stability) and is likely to return to this issue in 2021. The inspiration is
President Roosevelt’s New Deal programs during the Great Depression (mentioned several
times by Biden during the campaign). Fiscal restrictions may limit the public sector’s ability to
invest heavily, but the government is likely to seek public-private partnerships (which could
be acceptable to Republican Senators).
Departamento
Macroeconomic
de Pesquisas
Research eDepartment
Estudos Econômicos
4DEPEC Highlight – Bradesco
The environmental issue should also be a priority for infrastructure. One of the recurring
promises during the campaign is that Biden would seek to create millions of jobs by building
infrastructure to promote sustainable energy and electrifying transportation to achieve more
ambitious goals for reducing carbon emissions. Republicans will likely seek to prioritize job
growth and a gradual transition from fossil fuels, but there may be room for some
convergence on this issue. The scale of such projects can have global implications, especially
in the commodity prices.
Departamento
Macroeconomic
de Pesquisas
Research eDepartment
Estudos Econômicos
5Depec Highlight – Bradesco
Technical Staff
Director of Economic Research and Studies Fernando Honorato Barbosa
Economists Ariana Stephanie Zerbinatti / Constantin Jancsó / Fabiana D’Atri / Felipe
Wajskop França / Myriã Tatiany Neves Bast / Priscila Pacheco Trigo / Robson
Rodrigues Pereira / Thiago Coraucci de Angelis / Thomas Henrique Schreurs
Pires
Research Assistants Ana Beatriz Moreira dos Santos / Renan Bassoli Diniz
Interns Gustavo Rostelato de Miranda / Henrique Monteiro de Souza Rangel / Lucas
Daniel Duarte / Lucas Oliveira Costa da Silva
economiaemdia.com.br
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the authors, the publication, and Banco BRADESCO).
Departamento
Macroeconomic
de Pesquisas
Research eDepartment
Estudos Econômicos
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