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Jeudi 17 Décembre 2020

How Biden will Approach the Current US Recession


COVID-19 has created a recession in the US that was snapped during the Q3 of 2020.



The rebound created a divergence in the US economy between the haves and the have nots, which can be depicted in share trading with the S&P 500 index at all-time highs alongside extreme food lines. While economic growth rebounded sharply in the Q3 of 2020, Q4 is now expected to be slow, which is a challenge that president-elect Biden will need to deal with when he takes office on January 20, 2021. With the addition of Janet Yellen as the new Treasury Secretary and a plan to add stimulus, help appear on the way.

Enter Janet Yellen

One of the first steps President-Elect Biden will due is to look for a stimulus deal that will help stem the tide until a vaccine prevents the spread of the virus across the United States. He will also unleash his pick for Treasury Secretary, former Federal Reserve Chair Janet Yellen. If confirmed, she will be the first woman in history to be a treasury secretary, after being the first woman to lead the Federal Reserve. Yellen will be a critical figure in U.S. trade negotiations with China.

Trade Tariffs have been a Drag on U.S. Growth

U.S.-China tensions escalated during the Presidency of Donald Trump. The actions Trump has taken against China include slapping elevated tariffs on Chinese goods and restricting access to the American market for some Chinese companies. He argued these measures would address what he said were risks to U.S. national security and unfair trade practices by Beijing. He claimed that the U.S. was collecting billions of dollars from China in trade tariffs, but this was a falsehood. The money that was collected came from U.S. vendors who needed to pay the tariffs if they purchased Chinese goods and services. Since many companies have supply chains where they need to purchase goods in China as some intermediate goods are not produced in other countries, they are forced to pay a tax that goes directly to the US government. What Trump did is raise taxes on U.S. vendors as a way to pay for other tax cuts.

Janet Yellen has in the past acknowledged concerns about Chinese industrial practices. Her policy stance on China is less known, but she has supported open trade and international trading. This could mean the removal of several of the different tariffs currently levied on China. In June 2018, four months after stepping down as Fed chair, Yellen raised concerns that the U.S. under Trump was turning inward and away from the rules-based, multilateral system. Yellen does have many issues with Chinese practices. She is not a fan of forced transfer of technology from overseas companies to their Chinese partners and alleged intellectual property theft.

A Stimulus Could be on the Way

For months, both Democrats and Republicans have been arguing about the size and scope of a new stimulus plan. In early December, the Democrats finally endorsed a $908 billion compromise stimulus plan proposed by a bipartisan group of moderate senators. The move was a significant concession by Democratic leaders who are looking for a financial package that is at least double the size. But the need of the people has pushed both sides to the table as the Republicans are looking to spend half that amount.

The spending bill is expected to be a temporary measure that should last until March. It was compiled by a bipartisan group including Senators Susan Collins of Maine, Joe Manchin III of West Virginia, Mitt Romney of Utah, and Mark Warner of Virginia. The law would immediately revive lapsed federal unemployment benefits at $300 a week, which is needed given the recent increase in U.S. jobless claims. It would also provide $288 billion for small businesses and $160 billion for state and local governments as well as create a liability shield for businesses operating during the pandemic.

There was immediate pushback from the Republican side. Mr. McConnell instead wants a scaled-back proposal that would repurpose unspent funds from the $2.2 trillion stimulus law enacted in March. It omits the federal jobless payments but would include about $300 billion for small businesses, restaurants, and theaters, and also contains liability protection for businesses. The Republican plan is focused on business while the bipartisan plan is focused on the individual. There is strong pushback from the Republicans to fund states that have been crippled by the spread of the virus.

The Bottom Line

Biden is inheriting a huge mess. While stocks are hitting all-time highs millions of Americans are out of work. Continuing Jobless claims, those who have been requesting claims for more than 2-weeks is still over 6-million. Biden will bring in the cavalry adding Janet Yellen, and stimulus and allow with a vaccine will hopefully be able to revive the U.S. economy.


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