U.S. elections: What is in for us?
US Presidential elections have always been an international event, especially from the last decade as the US has grown to become the largest economy in the world in addition to being a military superpower, which is why it is the most important recurring political events globally. It has a direct bearing on the shape of the global economy, on the turbulent politics of the democracies nearby and on the conflicts involving societies far away from it.
Like everything with the US, they have chosen to elect their political leader differently, through the system of Electoral College. The US constitution does not offer its voter’s right to vote for the president or his running mates, hence this is where presidential electors come into play. In each state, Democrats, Republicans and other minor political parties select their own “slate” of electors, which are put on the ballot. Under the ‘winner takes all’ practice, the party winning the popular vote — even by a narrow margin — gets the entire slate of electors. However, two states — Maine and Nebraska — have a district system of allocating electors. That means, two electors are allotted based on the winner of the statewide popular vote, while the rest are based on the popular vote in the congressional district. The number of electors is the addition of the number of the house representatives and the number of senators in the particular state.
To win, a presidential candidate has to just attain a simple majority of 270 electoral votes. While the polling is done on November 3, three other dates are important for the Electoral College process. On December 8 (known as ‘safe harbor day’), the secretary of state or equivalent for that state will choose which winning slate of electors will be called to the statehouse. A week later, on December 14, the electors will cast their own ballots for the president and vice president. This automatically dissolves the Electoral College.
The votes of the Electoral College will be counted in the US Congress in a joint session on January 6.
Everything may seem alright to you at this point of time but its impact on the election itself is very interesting and thought provoking, the most notable one is that the election result is determined only by some states called swing states which were Pennsylvania, Wisconsin, Michigan, Florida, North Carolina and Arizona in 2020 mainly because The Democratic and Republican parties have each developed solid bases in a series of states that are all but certain to vote for them in a presidential year. The swing states’ dominance is a consequence of the fact that almost every state chooses to allot all its electoral votes to whoever comes in first place statewide, regardless of the margin of victory. Naturally, then, when the general election comes around, candidates ignore every non-competitive state, meaning the vast majority of the country — and pour their resources into the few that tend to swing back and forth between Republicans and Democrats, for example, Hillary Clinton didn’t even campaign once in the state of California which has the highest number of electoral votes at 55 because the Democrats know they will win it anyway, similarly, trump just campaigned once in Texas which has the second highest number of electoral votes in the country at 39 for the same reasons.
There is also a sense of prejudice created by the Electoral College. In 2000, Al Gore won half a million more votes than George W. Bush nationwide, but Bush won the presidency after he was declared the winner in Florida by a mere 537 votes. In 2016, Hillary Clinton won an even bigger popular vote victory — by 2.1 percentage points — but she lost Wisconsin, Pennsylvania, and Michigan, each by a less than 1 percentage point margin, and so she lost the presidency. We can also note that Millions of votes in safe states end up being “wasted,” at least in terms of the presidential race, because it makes no difference whether Clinton wins California by 4 million votes, 400,000 votes, or 40 votes — in any scenario, she gets its 55 electors. Meanwhile, states like Florida and Ohio get the power to tip the outcome just because they happen to be closely divided politically.
What intrigues many of us is the impact of this election on India and its people, which is what we have covered below.
Joe Biden has won one of the most consequential and closest American elections and will be sworn in as the 46th US president on Jan 20, 2021. He had already served as vice president for 2 consecutive terms under the Obama administration. The result of the upcoming elections might not have a direct impact in India; however, certain sectors are expected to get affected by the results of the elections.
The US and its companies want to shift the supply chain away from China and look at India as a viable alternative. America recognizes India as an economic force to counter Chinese aggression in Asia. Biden’s government is likely to continue with favorable US policy towards India.
Biden’s policies affect the value of the dollar and indirectly affect the stock markets of all developing markets, particularly India. Industries, IT & Technology, Pharma & Healthcare, Financial services, metals, cement & construction are some of the sectors which are benefitted by the democrats winning the election and Indian companies having a strong presence in the US are benefiting the most.
On November 9, 2020, the Nifty index closed at 12,461 levels (all-time high), up by 1.6%. The broader markets too remained buoyant and ended in a range of 0.6–1%. All the sectoral indices witnessed healthy buying interest wherein banks, energy, telecom and metals were the top gainers. The reaction was mainly in response to the news of Joe Biden winning the US presidential elections.
The Indian government tries to promote FDI into India. The first step in this direction is the proposed GIFT city in Gujarat. Biden aims to strengthen diplomatic ties with the closest allies of the United States and supports the development of India. His government announced reforms to make America more inclusive and make trade agreements and immigration fairer and transparent. Biden also promised more Jobs and increased tax rates for businesses and wealthy citizens.
Let’s take a look at the promises made by Joe Biden and assess its impact.
· Jobs- Biden wants to create “millions of middle-class jobs” through his infrastructure plan. This involves building renewable energy infrastructure, anchor institutions, and climate resiliency industries. He wants to increase the federal minimum wage to $15 and believes labour leaders should be involved in new trade deal negotiations. Biden also wants to reform the temporary visa programs to make sure the government is not disincentivizing recruiting workers from the US. Plus, he plans to increase employment-based green cards from 10, 31,765 in 2019 supplemented by his infrastructure plan.
· Taxes- Biden wants to raise the top income tax rate back to 39.6% from 37% and the top corporate income tax rate to 28% from 21%. Biden also promised to apply Social Security taxes to earnings above $400,000 and proportionately higher for people in higher-income groups. Biden’s tax proposals will increase revenue by $4 trillion between 2021 and 2030.
· Trade-Biden plans to help America’s position in the global economy by investing at home in innovation and the middle classes first. He promises to do this before entering any new trade agreements. He also says the best way to confront China on intellectual property and technology transfers is by forming a coalition with allies and partners, not through unilateral tariffs.
· Immigration-Biden has condemned Trump’s approach to immigrants and asylum seekers, calling it “morally bankrupt” and “racist.” He supports comprehensive immigration reform and has in the past backed more restrictive policies. He emphasizes the need to address the root causes of immigration in countries of origin.
Based on the above promises, we can assess the impact on specific sectors and businesses which will be favoured by the democratic regime. Joe Biden is expected to bring good news for certain sectors back in India. The ripples of such an election can be felt not just in India but across the globe in equity markets. Some Indian companies having a strong footprint in the US are benefitted the most.
Biden plans to spend roughly US $3.2 trillion over the next decade. His plan includes a spending budget of US $750 billion to improve healthcare and the US $750 billion to revamp education. The majority of his Budget, about US $1.7 trillion, is to fight climate change. The massive spending plan will accelerate the adoption of electric vehicles and expedite the transition to renewable energy. US elections are likely to lead to short-term market swings that will be inconsequential over the longer run. These are the sectors that are expected to be affected directly by the outcome of the election.
· IT & Technology- Big IT giants such as Tata Consultancy Services, Infosys Ltd, Wipro Ltd and HCL Technologies have fallen under the direct scrutiny of Donald Trump as he believes that these companies are the root of IT outsourcing and immigration. The US accounts for more than 60% of the country’s software exports and the stocks of Indian companies have been doing tremendously well over the last 6 months (at least up by 40%)
· Pharma & Healthcare- About 80% of the active ingredients in medications taken in the US. Come mainly from India and China. Biden plans on investing in virus testing, a public health plan, and the race for a vaccine, pushing the establishment of a self-sustained supply chain of active Ingredients for Pharma somewhere in the unforeseen future.
The Pharma sector is expected to see at least a temporary boost as the US would take measures to move their API dependence away from China. India is one of the most equipped countries in Asia, is expected to see a lot of movement in terms of Pharmaceutical Manufacturing.
Sun Pharmaceuticals Ltd, Lupin Pharmaceutical Inc, Cipla Ltd and Dr Reddy’s laboratories are some of the Indian Pharma giants in the United States and would be directly affected by the results of the election.
· Metals- Metals and cement companies such as Tata Steel, JSW Steels, and Welspun Corp could directly benefit from the Infrastructural plans that have been proposed by Biden. The impact would be better from Biden’s side thanks to his less stringent approach in his approach towards a foreign company.
Historically, the Americans have opted for a Democratic Government when their livelihood is more uncertain and need more social Insurance and have opted for a Republican Government when they are willing to take the risk of doing business when the economy seems upbeat. America contributes over 20% of the world’s Income even though they constitute only 5% of the world’s population. Being such a Superpower, it is up to America to set an example for the developing nations with sustainable development.
Biden’s victory will benefit various industries in developing countries such as India where we are starting to see the dawn of an era of economic development. The smooth transition in power from one president to another in a global superpower such as the United States of America could ensure that the trade activities in developing countries are being carried out smoothly.
