“Events, dear boy, events”, UK Prime Minister Harold Macmillan responded to a journalist when asked what is most likely to blow governments off course.
At the beginning of this year, Donald Trump was favourite to follow in the footsteps of the previous three Presidents and win re-election. However, events have since unfolded that put his re-election into serious doubt.
The Democratic candidate Joseph Biden is ahead in every single national poll by wide margins, polling well outside the margin of error. The swing state polling is much closer, but it still looks favourable to Biden right now.
We need to factor in that most polls in 2016 gave Hillary Clinton a commanding lead, which did not materialise on election day. Given the unrest at the moment, this may be due to ‘shy Republicans.’ The election is still likely to be close. The latest Zogby poll of “Who do you think will win?” rather than “Who will you vote for?” gave Trump a 51%-43% lead.
The Electoral College
The US election is not won by a popular national vote: instead the candidates need to win the election state by state. Each state then gives its electoral college votes to the candidate who obtains the most popular votes within that state. Trump flipped Pennsylvania, Ohio, Florida, Wisconsin, Michigan, and Iowa from the Democrats in order to win in 2016. He has smartly registered as a resident of Florida (from New York) for the 2020 election as he knows how important the state is for his re-election. Without it he will be a one term President.
Trump will likely hold Ohio and Iowa. Assuming he keeps Florida, that means he needs to hang on to one of the other three states from the above list. The mid-western state of Wisconsin right now looks like the place he needs to focus his efforts. He also needs to keep hold of Arizona, Georgia and North Carolina, all of which he won in 2016. All are traditionally Republican states but are looking close in polling. Arizona will be the state to watch. As Arizona goes, so will the country.
US election of 1968 again? – Hubert Humphrey vs Richard Nixon
The social unrest due to the Vietnam war and the ‘free love’ movement all culminated in a narrow win for the not-so-popular Richard Nixon in 1968. Nixon later said “the silent majority” had spoken: the Americans who don’t necessarily speak out, but who were unhappy with the direction of the country.
The current social unrest could be a test for Democrats. If the party shifts too far to the left it will be problematic for them. The “Defund the Police” movement will scare a lot of swing voters (with some polls showing 7 out of 10 African-Americans are against it). Democrats needs to be careful they are not captured by this.
Gun sales in May reached a high of 1.8m! That’s a lot of worried voters. Biden seems to be countering this with a strong pick for vice-president, with the short-listed candidates having strong law and order backgrounds.
There are now concerns over a second shutdown, with the Coronavirus infection rate rising in southern states. This could stall the momentum the economy has (the unemployment rate unexpectedly fell in May to 13.3% from 14.7% in April). Trump needs this momentum to continue if he has any chance in November.
A recent poll showed that Trump still had a 95% approval rating amongst Republicans. This is very important. Carter and Bush Snr lost their re-election attempts when they lost the base of their own parties. Republicans are discussing another stimulus package, but this will not be easy to get through the senate. Hawkish senators will balk at yet more government spending and adding even more to the national debt. Trump may need it to get the economy through until November.
Trump wants out of the Paris Climate deal, but in effect the winner of the next election will decide. Joe Biden, who is more of an internationalist, will keep the US in. Expect a Green New Deal if Biden is elected, plus an increase in social spending.
Spending in general will go up under Democrats, so we should expect some pressure on US Treasury yields then. I think it is safe to assume that, if Joe Biden does win the November election, the Democrats will keep their majority in the House of Representatives and also re-capture the Senate. A single party holding both chambers and the White House will not have too much trouble passing legislation.
It is worth remembering that Joe Biden is not the self-styled Democratic-Socialist Bernie Sanders is – there will be no revolution. So financial markets should be relatively stable. Democrats tend to talk about offsetting spending with tax rises. US corporate tax rates would likely be restored to the Obama era level. Fuel tax rises would also be increased to help pay for the green new deal.
From a UK perspective, Trump is the most Anglophile holder of the office since the last elected US President from New York, Franklin Delano Roosevelt. As we are now leaving the European Union, a trade deal with the US will be very important and can be used as leverage to sign deals with other countries around the world, including the EU. The Trump administration so far has shown itself to be accommodative.
Biden is four years older than Donald Trump. There is a chance he will commit to only one term as President. His pick of vice president will be important. It is likely to be an African American woman, with Kamala Harris (former prosecutor and California Senator) or Val Demmings (former chief of police and current Congresswoman from Florida) as favourites. Both seem sensible and uncontentious choices, but have shown tendencies of being politically naïve.
Biden will need to prove that he can be strong against foreign adversaries, especially China. It was the China rhetoric that helped propel Trump to the White House in 2016 and win over the traditionally Democratic mid-west and rust belt states.
This is Joe Biden’s third attempt at the Presidency (the first was in 1987). He lacks the political instincts of Donald Trump, Barack Obama, or Bill Clinton. The fact the candidates are unable to campaign fully right now works in Biden’s favour. But it is unlikely to stay this way until November.