I hope that everyone had an enjoyable holiday season and that you and yours are healthy and safe during these trying times. Now that several COVID-19 vaccines have been approved and are being distributed, it brings hope that we will return to a sense of normalcy at some point this new year. The impact of COVID-19 to the economy, however, will be felt well beyond 2021, and, of course, certain aspects of doing business have been permanently changed, especially for companies doing business internationally.
The new year also brings a new administration which, in normal times might result in a level of uncertainty that would upset the stock market. Thankfully, because of Biden’s many years in politics, his track record is well established and, furthermore, his cabinet picks to date have signaled a continuation of this trend. With regards to trade, we can expect new Free Trade Agreements to be negotiated multilaterally with our allies as a means to influence countries like China rather than directly via unilateral agreements. However, because multilateral agreements take more time to negotiate, it is doubtful that any new agreements will be signed in the first two years of the new administration.
The Biden administration has also announced that it does not intent to immediately withdraw the Section 301 tariffs on Chinese goods which, as of November 2020, have resulted in over $68 billion in duties collected by U.S. Customs. The majority of these duties are, in fact, paid for by the US importers and subsequently passed down to the consumers (not to mention the retaliatory tariffs China has put on US imports in response). For this reason, many US manufacturers have scrambled to offset this tax by finding non-Chinese sources or through tariff engineering. However, as the intent of Section 301 and, to an extent, Section 232 tariffs was to put pressure on and, at the same time, lower our dependence on China, we can expect the Biden administration will continue to leverage these tariff actions in the near term.
We will also glean more about the Biden administration’s economic policies once his choice of Commerce Secretary is announced. Some have speculated that the President-elect might appoint a Republican to the position which, does make political sense, however, finding a moderate who is able and willing to work with a Democratic administration may not be a realistic proposition.
Finally, many economic prognosticators foresee an increase in infrastructure spending under the new administration, however, COVID-19 has resulted in a record high federal deficit of $3.7 trillion in October, even before the 2nd stimulus package was passed in December at the cost of “just” $900 billion. Although Biden has promised to increases taxes on large corporations and the very wealthy, it is doubtful any tax increases would pass under a Republican-controlled Senate and, even with infrastructure spending directly benefitting the U.S. economy, budget-conscious politicians will likely oppose increasing the deficit further.
Time and again we see that companies who do business internationally outperform their non-exporting peers and 2020 made that comparison even more pronounced. While protectionism might provide some short-term benefits, in the long run, free and unfettered trade leads to greater prosperity for all Americans writ large. A renewed focused on growing the world economy via trade will provide further opportunities for Wisconsin companies and, the Wisconsin SBDC Network is here to help you achieve your goals. Please contact me to learn more: