What a Biden re-election would mean for the US economy

The Democrat can point to achievements in office, including success on jobs and inflation. Inward investment is up and Chinese imports are down, but will any of that matter at the ballot box?

Stephen Maturen/AFP

US President Joe Biden speaks about funding for the I-535 Blatnik Bridge at Earth Rider Brewery on January 25, 2024, in Superior, Wisconsin. Biden touched on his economic agenda and recent federal funding for infrastructure projects

What a Biden re-election would mean for the US economy

Toufic Chanbour

last update on 28 Jun 2024

The first televised debate between Joe Biden and Donald Trump of this year’s US presidential election sounded the opening bell on the contest between the two candidates. After three and a half years, Biden is keen to showcase his economic achievements. Reducing inflation will be one of his trump cards. Yet many, including Trump, think the figures and statistics do not reflect the reality of the US economy.

The cost of basic items needed in every household, and the impact this has on a household’s disposable income, is highly charged. Biden knows that many Americans do not feel that they are yet benefitting from the wins he wants to talk about. This is one of the many reasons why 2024 is such a contentious presidential election. It is also the first time since 1892 that two White House occupants (either current or former) have faced off against each other.

Trump, who has become a convicted felon since he reluctantly left office, seems to be riding high in the polls, while Biden is the first US president to have his son convicted during his term of office (for drug-related firearm charges). Although Biden might benefit from the trend of US presidents being re-elected, his advanced age could work against him. He is currently five years past the average US life expectancy and would be 86 by the end of any second term. That may count in voters’ minds, not least because his lapses and falls have been so accentuated.

Building on Bidenomics

Biden’s campaign slogan—Let’s Finish the Job—builds on the groundwork he laid in his 2024 State of the Union address, where he highlighted the achievements of his economic policies (known as Bidenomics) and his plan to complete other projects. Biden says he inherited a poor economy from Trump due in large part to Trump’s failure to address the pandemic, disregarding experts’ advice in the belief that the virus would disappear within a few weeks.

It did not, and as Americans went to the polls, businesses were closing, millions were losing their jobs, and up to 40 million faced the risk of eviction. As the world waited for vaccines, hundreds of thousands of Americans died (the final figure was 1.2 million). Biden's administration, which took power in January 2021, managed to control the pandemic and the subsequent recession, so he is happy to focus on this area because today's US economy is admired worldwide.

Around 15 million new jobs have been created in the past three years, unemployment is at its lowest level in 50 years, and a record number of Americans (16 million) have started small businesses. Additionally, more people now have health insurance than ever before, the racial wealth gap has shrunk to its narrowest in a generation, wages have risen, and inflation has dropped from 9% to 2.7%, the lowest in the world, with a downward trend.

Stimulating investment

The recovery was achieved through massive state rescue schemes, the most important being the American Rescue Plan Act and the Infrastructure Investment and Jobs Act. Although Biden has a neoliberal economic philosophy, these packages were more in-keeping with an interventionist state, providing a larger social safety net.

Furthermore, foreign imports (especially from China) have been curtailed, which has had a positive impact on US jobs. The expansion of US-made exports also grew jobs domestically. For the first time since the 1930s, Americans now mainly buy products that are 'Made in America'. During the pandemic, strict lockdown rules in Asia led to a worldwide shortage of semiconductors, which in turn led to price rises in everything they are used in, from mobile phones to cars.

Rather than rely on the importation of US-designed semiconductors that are made abroad, American firms have now invested billions of dollars building new semiconductor factories in the US, creating well-paying jobs in the process. Thanks to the Creating Helpful Incentives to Biden-sponsored Produce Semiconductors (CHIPS) and Science Act, enacted in 2022, the US is investing more in research and development than ever before. It has helped revive semiconductor production in the US, attracting $157bn of investments and creating 25,400 jobs.

ANDREW CABALLERO-REYNOLDS / AFP — Biden looks at a mock-up of a semiconductor facility before he speaks on "how the CHIPS and Science Act and his Investing in America agenda are growing the economy and creating jobs in Syracuse, New York, on April 25, 2024.

Yet that is dwarfed by the $650bn of private sector investments in clean energy. The Environmental Protection Agency (EPA), which Trump proposed eliminating, has put the US on a path towards reducing greenhouse gas emissions by 50% by 2030.

Jobs and price cuts

The Infrastructure Investment and Jobs Act, also called the Bipartisan Infrastructure Law, has led to 46,000 new projects including upgrades to roads, bridges, ports, airports, public transport systems, and more.

In healthcare, pressure on major pharmaceutical companies has reduced the price of drugs. Insulin, for instance, has fallen from $400 to $35 per month, benefiting one in every eight Americans, or 38.4 million people. Negotiations with Medicare also lowered the price of 500 treatments for cancer, heart disease, arthritis, and other conditions. Trump, by contrast, plans to reverse these wins by repealing the Affordable Care Act, which made the price reductions possible.

On housing, Biden's annual tax credit gives Americans $400 per month to help pay their mortgages when they buy their first home or relocate. There are also plans to crack down on landlords who violate antitrust laws to raise rents. Beyond that, federal funding will help build 1.7 million new housing units nationwide. There are also plans to reduce education costs, increase grants for working families, and invest in higher education to help Hispanic and Black minorities. Student loans have also been modified to alleviate massive debt burdens for about 4 million Americans.

Reality vs perceptions

Despite all this, many US voters still see the glass as half-empty and question Biden's promises. Unemployment rose slightly to 4% in May from 3.9%, and some new jobs are temporary, part-time, or seasonal. Biden's critics have jumped on this. According to a Yahoo and Stat Ipsos study, only one in five Americans thinks the US is performing better than other rich countries. Two-thirds do not think inflation has come down.

James Galbraith of the University of Texas thinks the Misery Index—which measures factors like unemployment and inflation—can be misleading. Unemployment typically affects only some of the population, while inflation affects most. The important thing is not the general slowing of price rises but price slowdowns and purchasing power. Since 2021, when Biden took office, real wages have fallen by 1.4% due to inflation. Angus Deaton, a professor of economics at Princeton University, thinks the issue goes deeper than purchasing power and impacts education and healthcare.

"How can it be said that the country is in good shape when life expectancy for two-thirds of the population has decreased over the past 15 years?" he asks.

"Moreover, increases in interest rates, or keeping them high, will eventually act as a brake on activity and the recovery of purchasing power, which will be recorded as a failure in Bidenomics and Biden's policies."

Biden is keen to showcase his economic achievements, but he knows that many Americans do not feel that they are yet benefitting from them.

Deficits and dividing lines

Republicans say Biden's huge injection of cash into the economy led to the price rises felt by the public. Democrats instead attribute it to supply chain disruptions and wage increases that occurred at the end of the pandemic, especially in services.

Among the critical election issues are the federal deficit and public finance. Biden has reduced the deficit by more than $1tn and wants to cut another $3tn by ending tax loopholes for big pharmaceutical and oil firms, private jets, and executive salaries. He will also raise the tax that big companies pay to 21% and tax billionaires 25%. One of Trump's first actions as president was to cut $2tn in taxes, which mainly benefited large companies and wealthy individuals, but led to a ballooning federal deficit, which increased national debt more than any other presidency in US history.

A dividing line between Democrats and Republicans relates to immigration and the border. In December 2023, illegal entry into the United States reached an all-time high, with 302,000 crossings and 250,000 arrests. A bipartisan bill would have led to more money for border security guards and immigration judges, and additional equipment to detect smuggling, but Trump's allies blocked the vote on it to stop Biden claiming it as a triumph.

Biden had previously said that he would not stop people from entering the US because of their faith, as his predecessor Trump did when he banned citizens of seven Muslim-majority countries. Biden also ruled out bans for other causes like famine, in part owing to his own family's tragic history of fleeing Ireland for that very reason. He said such bans denied the value of diversity, which is fundamental to American life.

Trump, by contrast, threatened high tariffs on countries whose citizens regularly sought asylum in the US, arguing that their continuous influx burdened public services. He claimed that the cost to Americans of illegal immigration was five times that of Europe.

Fighting over the Fed

There was also sharp disagreement between Republicans and Democrats regarding the Federal Reserve, whose independence Biden supports. He has repeatedly expressed confidence in its chair, Jerome Powell. A recent blog by the White House Council of Economic Advisers noted that "central banks that are pliant to politicians serve their economies poorly… independent ones perform better in controlling inflation" before adding—with a wink—that Biden's team was "highly enthusiastic about historical experiences".

In contrast, Trump—who appointed Powell—expressed frustration that his chosen candidate did not lower interest rates to boost the economy (at a time when it would have been politically expedient for Trump had they been).

Today, and with not a hint of irony, the conspiracy-minded Trump accuses Biden of allowing inflation to remain high in the belief that Powell will lower interest rates at a politically expedient time to help Biden get re-elected. According to Mohamed El-Erian, president of Queens' College at the University of Cambridge, hopes for an interest rate cut before July will diminish because data for non-farm jobs in May showed an increase of over 100,000 jobs, more than market expectations.

Disagreeing over China

Internationally, Biden has worked hard to restore the role of the United States after Trump spent much of his presidency withdrawing from, or admonishing, multilateral institutions and agreements, including the World Health Organisation and the Paris Climate Agreement.

Win McNamee/AFP — US President Joe Biden is applauded by union members after signing orders that increase tariffs on China to promote American investments and jobs in the Rose Garden of the White House on May 14, 2024, in Washington, DC.

In China, Biden sees competition, while Trump sees conflict. He proposes increasing tariffs on all US imports from China by 10%. This could maintain tax cuts for families approved in 2017 and set to expire at the end of 2025, but it would undoubtedly lead to retaliatory measures and a trade war, which benefits no one in the long run.

Biden acknowledges that China is thriving, but he insists that the US has not fallen as far behind as some believe—America still has the best economy in the world. Under him, the trade deficit with China is at its lowest level in over a decade, down 27% last year alone. Data from the Bureau of Economic Analysis show that in 2023, the US bought more goods from Mexico (worth $475.6bn) than from China ($427.2bn). Brad Setser of the Council on Foreign Relations thinks this is due to a shift towards other Asian economies, particularly Taiwan and Vietnam.

A few weeks ago, Biden reversed his position and imposed tariffs on imports from China, pre-empting Trump's plan to do the same.

Harold James, a professor of international affairs at Princeton University, asked in Project Syndicate if Biden was intentionally undermining himself against his opponent, increasing concerns about Trump's authoritarian nationalism and the future of democracy. He argues that the public does not directly buy batteries, steel, aluminium, semiconductors, or rare earth metals like gallium and germanium from China, but these are nevertheless essential in many US-made devices.

Biden hopes that Americans would be cushioned from any economic impact, but this is not the case: tariffs will exacerbate the issue of rising living costs for Americans. This is a gift for Trump, who has made inflation a key issue.

A clinching argument?

Jeffrey Frankel, a professor of economics at Harvard University, shows that average annual gross domestic product (GDP) growth under Democratic presidents has been 4.3% across 16 presidential terms since World War II but 2.5% under Republicans. Be that as it may, Michael Boskin, an economics professor at Stanford University, thinks Biden's record will not be enough to secure victory in November because voters still associate his economic policies with "cumulative inflation," which rose to a 40-year high.

Although important, economic legacy and policy are not decisive enough to tip the scales in favour of one or another candidate. Prices of goods and services paid for in the weeks before voting will influence who people elect.

Until then, populist slogans will remain heated between the candidates. Trump, who is more adept at using these slogans, warns of "extreme leftist policies" if Biden wins. By contrast, Biden accuses Trump of "seeing things through a lens of revenge, punishment, hatred, and isolationism—old ideas that only lead America backwards".

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