ELECTION COUNTDOWN: HOW COVID-19 IS SHAPING THE PRESIDENTIAL RACE
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ACCESS A BROADER MARKET PERSPECTIVE ELECTION COUNTDOWN: HOW COVID-19 IS SHAPING THE PRESIDENTIAL RACE BY JOHN VELIS
KEY DATES AUGUST 17–20* Scaled-down Democratic National Convention. Biden to present his running mate. AUGUST 24–27* Scaled-down Republican National Convention. COVID-19 resurgence in Florida puts large-scale event in doubt. SEPTEMBER 29* First presidential debate. OCTOBER 7* Vice presidential debate. OCTOBER 15* Second presidential debate. OCTOBER 22* Third and final presidential debate. NOVEMBER 3* Presidential election. Results could be delayed as large number of votes-by-mail and/or absentee ballots will need to be counted. JANUARY 20* Presidential inauguration. *Currently scheduled but not confirmed.
AS COVID-19 CONTINUES TO PUMMEL THE U.S.
ECONOMY AND HURT PRESIDENT TRUMP’S
CHANCES OF REELECTION, WE ASSESS THE
MATERIAL POLICY IMPLICATIONS OF A BIDEN
WIN AND HOW MARKETS MIGHT WEIGH HIS
POTENTIAL AS A MODERATE.
BY JOHN VELIS
he 2020 U.S. presidential international economic relations will prospect of two branches of govern-
T election is now less than
100 days away. Will voters
choose to keep Republican
President Donald Trump in office for
another four years, or will they elect
be very different depending on the
administration in power.
There are stark differences in the
candidates’ governing philosophy and
ideology. A Biden win would likely rep-
ment fully in the hands of one political
party, a state of affairs seen only five
times in the last 40 years.
Incumbent presidents typically have
an advantage when running for reelec-
former Democratic Vice President Joe resent a more government-centered, tion. Indeed, since 1900 only four sit-
Biden? redistributive vision of government, ting presidents ran for, but did not
The polls are currently pointing to whereas the Trump policy agenda has retain, the White House. In every case
a Biden win, but we have learned by been much more laissez-faire for corpo- in which an incumbent lost reelection,
now to take pre-election polls with rate America and would likely continue he was running during — or immedi-
more than a grain of salt. Even if Biden to be so. ately on the heels of — a downturn in
wins, control of the Senate, which is the economy. The two most recent
currently closely balanced and which GOING TO THE POLLS examples were Jimmy Carter and
already features hotly contested bat- It is difficult to understate the conse- George H.W. Bush in 1980 and 1992,
tles on almost every issue, will be quential nature of the 2020 presiden- respectively.
important. If the Democrats control the tial election, just three months away. In President Bush’s case, although
White House, and both the House of The eventful nature of the first Trump the official recession ended in early
Representatives and the Senate, Biden’s Administration, as well as the historic 1991, according to the National Bureau
ability to deliver on key policy objec- COVID-19 crisis in the U.S. and glob- of Economic Research’s dating of busi-
tives might be easier to accomplish. ally, set against the backdrop of social ness cycles, the unemployment rate
But a divided government, with unrest and deep political division, will didn’t peak until just before the elec-
majorities held by different par- make economic and market conse- tion in June 1992. An even more glaring
ties in the House and Senate, could quences of the outcome profound. example of an incumbent losing in the
complicate either Trump or Biden’s It will be anything but business as context of a poor economy was in 1932,
agenda. Fiscal policy, health care usual after January 20, 2021. At stake with President Roosevelt’s defeat of
policy, national economic strategy and is not just the presidency, but the Herbert Hoover during the early yearsA key question for this election, then, is whether or not the Democrats gain control of both houses of Congress and the White House of the Great Depression. Given the cur- Pennsylvania and Michigan that ulti- there is speculation as to whether or rent struggles in the economy, these mately determine the victor in the not he chooses to “go big” and hard historical precedents don’t bode well Electoral College — the polling gaps to the left on major economic polices for President Trump’s chances. were much narrower on the eve of the — especially if the Democrats retain While it’s still nearly three months 2016 vote and the results were gener- the House and gain the Senate. The to the election, polls indicate that ally within the margin of error. It would progressive wing of the party is in the president is facing a difficult task. be an upset of historic proportions — the ascendency, although more tradi- Historically, the incumbent’s approval much more so than even in 2016 — if the tional center-left elements of the party rating is a good barometer of his share current polls are so far off this election. still occupy the mainstream. Biden’s of the general election vote. According choice of a running mate around to the mid-July assessment from Real TOP OF THE AGENDA mid-August (see Key Dates, page 2) will Clear Politics, Trump is carrying an The presidency isn’t the only office at be instructive as to whether he plans average approval rating across pollsters risk of changing parties. Democrats to run a moderately left campaign — of about 41%, down from around 47% already have the majority in the House and potential administration in the just four months ago (see chart, page of Representatives, but the Senate is still event he wins the presidency — or one 5). While not the lowest of his presi- in Republican hands. With a net gain that plays more to the progressive dency, that is close to the bottom of the of three seats in November, and more wing of the party. range within which it has moved since Republican seats in play, the race for But the pandemic-related shock to mid-2018. To be sure, the national pop- control of the Senate is almost as con- the U.S. economy is historically and ular vote doesn’t determine the winner sequential as the presidential election economically unprecedented. Under of the election, the Electoral College itself. It’s not been unusual in recent either a Biden administration or a does. But even in states that are key decades to have divided government, second Trump term, the effects of and in the Electoral College, former Vice and folk wisdom is that markets tend to eventual recovery from COVID-19 will President Biden is polling strongly, and perform better in such circumstances be a multi-year process, as we have carries the polling lead going into the because with opposing parties occu- written recently. Policies that prioritize final three months of the race. pying the executive and the legislature, job creation and business formation, We acknowledge that polls in the radical changes in policy are less likely. while cushioning the deep declines past have been inaccurate and sur- A key question for this election, in household income and aggregate prises — from the Brexit vote in the then, is whether or not the Democrats consumer demand, will likely be the U.K. to the 2016 presidential election g a i n c o n t ro l o f b o t h h o u s e s o f order of the day. This major realloca- — have recently occurred in important Congress and the White House, raising tion shock will therefore both constrain national votes. On the other hand, we the prospect of significant changes in as well as influence post-COVID-19 note that the final popular vote polling policy, potentially in a market-un- policies. in 2016 was largely accurate, having friendly direction. The Democrats are Nevertheless, there are obviously mostly foreseen Hilary Clinton’s narrow highly likely to retain the House of clear differences on economic policy advantage in the actual vote. Representatives comfortably, if one is between the two parties. Below we In the states — particularly those to believe current polls. Should Biden enumerate and comment on some of “ s w i n g s t a t e s ” l i ke W i s c o n s i n , win, as the current polls suggest, the main issues.
TALKING HEAD
Biden has been leading in the polls recently, with Trump's approval ratings and chances of being
-./ reelected falling behind
60% 60%
TRUMP ODDS OF RE-ELECTION
TRUMP APPROVAL RATING, RHS
55% 55%
50% 50%
Percent
45% 45%
40% 40%
%$$%
%$+%
%$$*
%$#*
%$+*
35% 35%
12/4/19 01/4/20 02/4/20 03/4/20 04/4/20 05/4/20 06/4/20 07/4/20
SOURCE: REAL CLEAR POLITICS, PREDICTIT; DATA THROUGH JULY 15, 2020
2-< 6=>? 9. 2A63
• FISCAL POLICY: A detailed if both branches of Congress are pledges to revitalize the U.S.
discussion on the two controlled by different parties. manufacturing industry, but
candidates’ tax policies should the size and relevance of
be taken with a grain of salt, • INVESTMENT: Trump has manufacturing in the domestic
given the likely fiscal fallout long expressed a desire to economy has been shrinking for
of the COVID-19 crisis and see significant infrastructure decades (see chart).
the difficulty of extracting spending, although as yet there
substantial taxes from the has been no material outcome • HEALTH CARE: Biden’s approach
usual places during a time of from those discussions. to health care is to introduce a
economic upheaval. In general, Biden’s program envisions public option to the Affordable
however, we would expect a large role for government Care Act, expand coverage, and
Biden to place more of the fiscal in infrastructure upgrades, reduce the qualifying thresholds
burden on companies rather particularly in green projects. for Medicare and Medicaid. Hard
than workers. For the markets There is also the obligatory numbers are difficult to come by,
this would suggest capital pledge to encourage the revival but these moves would almost
will be more costly to raise of U.S. manufacturing with “buy certainly place new strain on the
and deploy, reducing capital American” policies. Details government’s fiscal accounts.
productivity just on the heels on both sides are lacking, but The Trump Administration
of a significant supply shock the stated vision is to adapt has ruled out proposing any
from the pandemic. Short-term to the current trend of de- major initiatives on health
fiscal policy would be aimed at globalization and COVID-19 care until the Supreme Court
the post-COVID-19 recovery and recovery by producing more rules on the law, which will not
requires flexibility and alacrity, goods at home. We should note happen before the election. The
something that would be that almost every presidential pandemic, of course – as with
worrisomely difficult to achieve candidate in living memory almost every issue – will exert aMAKING DO
Manufacturing jobs are on the rise again after a sharp drop
18 15%
MANUFACTURING AS PERCENTAGE OF TOTAL EMPLOYMENT RHS 14%
MANUFACTURING EMPLOYMENT
13%
16
12%
Millions of Jobs
11%
14 10%
9%
8%
12
7%
6%
10 5%
2001 2006 2011 2016 2020
('%%
('%*
(' %
(' *
SOURCE: REAL CLEAR POLITICS, PREDICTIT, DATA THROUGH JULY 15, 2020
great deal of influence on health CONCLUSION presidency in the first term has been
care access and standards, As we stated at the outset, the land- much more laissez-faire when it comes
and shape the debate into the scape post-COVID-19, as uncertain to business and the economy (if not
campaign and beyond. as it appears to be, will color policy the Federal Reserve), and focused on
requirements and the choices of future industry support and market flexibility
• INTERNATIONAL REL ATIONS: administrations. – at least domestically.
U.S. trade relations under Trump In principle, a more government It appears that post-COVID-19, insti-
have been strained to say the -centered, redistributive, traditional tutions will be re-designed but not
least. The relationship with leftish response would likely char- reinvented, managed and utilized
China is particularly fraught, and acterize a Biden presidency. So far it according to very different political
the virus has only exacerbated appears his campaign has appealed and societal perspectives. Regardless of
concerns. The Phase I trade deal mainly to his base but may shift to who wins, the next administration will
with China remains nominally in broaden his appeal before November. likely need to rely more on traditional
place, although its staying power Beyond 2020, a Biden presidency Washington institutions as the country
has been in doubt from time to should be less susceptible to demands recovers.
time. Trump has spoken ill of and pressure from the left wing of the
the World Trade Organization, Democratic Party; in other words,
intimating a withdrawal by our working assumption is that we
the U.S. While Biden would don’t expect a Democratic-led presi-
probably be less aggressive, he dency to deliver a progressive agenda John Velis is an FX and macro strategist
will likely also guard U.S. trade at all costs. Instead we foresee a more at BNY Mellon Americas.
prerogatives. Either way, the center-left stance, one that would Questions or comments? Write to
zeitgeist regardless of party remain heavily reliant on government Daniel.Tenengauzer@bnymellon.com,
is to push the “buy American” institutions’ advice. John.Velis@bnymellon.com or reach out
aspiration. On the other hand, the Trump to your usual relationship manager.MAPPING THE RACE FOR THE SENATE
More Republican seats in play
% !"
WA ME
% &" MT ND
VT
MN NH
OR WI NY MA
% %"
ID SD
MI
CT
RI
WY
PA
IA NJ
NE OH MD DE
$" NV
UT
IL IN
WV DC
CO VA
KS MO KY
CA
#" TN
NC
OK AR SC
AZ GA 1
NM
AL
!" MS
GA 2
TX LA
FL
AK
DEMOCRATS REPUBLICANS
Safe Safe
HI
Likely Likely
Leans Leans
Toss Up Toss Up
Pick Ups (CO) Pick Ups (AL)
39 SAFE OR NOT UP 3 5 7 3 6 38 SAFE OR NOT UP
51 SEATS NEEDED FOR MAJORITY
LIKELY DEM LEANS DEM TOSS UP LEANS GOP LIKELY GOP
NJ: BOOKER (D) CO: GARDNER (R) AZ: MCSALLY (R) GA2: LOEFFLER (R) AL: JONES (D)
OR: MERKLEY (D) MN: SMITH (D) GA1: PERDUE (R) KS: OPEN (R) AK: SULLIVAN (R)
VA: WARNER (D) NH: SHAHEEN (D) IA: ERNST (R) TX: CORNYN (R) KY: MCCONNELL (R)
NM: OPEN (D) ME: COLLINS (R) MS: HYDE-SMITH (R)
MI: PETERS (D) SC: GRAHAM (R)
MT: DAINES (R) TN: OPEN (R)
NC: TILLIS (R)
* Senators Angus King (I-ME) and Bernie Sanders (I-VT) currently caucus with the Democrats. Current Senate: 47 Democrats, 53 Republicans
SOURCE: REAL CLEAR POLITICSBNYMELLON.COM
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