Healing the wounds of Covid-19. Even with a divided Congress, Biden’s victory brings a non-negligible possibility of seeing a two-year USD1.9trn stimulus program voted in by late January 2021. Unfortunately, this program will come too late as rising infections are likely to bring the stringency level of lockdown measures to a new record in January, dramatically penalizing real GDP growth: we expect -8% q/q annualized in Q4 2020. An increase in income support, mainly occurring in H1 2021, and in infrastructure spending in H2 2021, will amount to more than USD920bn in total stimulus over the course of 2021, contributing +1.1pp to +3.6% of real GDP growth expected next year. Another USD980trn leg of federal spending is expected in 2022, with an even higher contribution to growth at +1.6pp. All in all, the level of U.S. government expenditure will exceed its current trajectory by USD6.4trn at the 2030 horizon (+USD2.7trn in net terms).

Reducing inequalities and redistributing wealth without over-penalizing companies. With more redistributive policies, notably the unwinding of Trump’s tax cuts, U.S. tax revenues could increase by USD3.7trn at the 2030 horizon. The rise in corporate taxes from 21% to 28% remains possible despite a divided Congress, putting businesses’ margins within a lower range of 5-6% of GDP compared with a 7.4% average since 2010. The increase in the official corporate tax rate could be partially offset by tax credits (potentially offered in Biden’s plan to combat climate change) as a bargain to obtain a bipartisan agreement, resulting in an effective tax rate close to 20%.

Rebuilding international cooperation. Trade and foreign relations are likely to improve with historical allies. However, we don’t expect Biden to significantly alter Trump’s protectionist policies in the very short-term as China is running behind on its commitments to Phase I of the recent deal. The U.S. average tariff could remain stable at 7% over the coming years (v. 3.5% prior to 2017).

Reconciling climate protection with a new industrial policy. Biden’s plan against climate change represents almost one third of his public spending program, and a truly new industrial policy for the U.S. It entails developing modern and clean infrastructure, investing in R&D and helping the economy transition towards more sustainable models of consumption and production. U.S. protectionism – the last aspect of any real industrial policy – is likely to take a more coordinated aspect, with a return to the Paris agreement and non-tariff forms.

What does a Biden win mean for the economy and the market? The big “winner” of this election – although not in a good way – is public debt, expected at 159% of GDP in 2030, compared with 135% in 2020. In the short-term, we expect U.S. GDP growth to reach -4.2% y/y in 2020, +3.6% y/y in 2021 and +3.1% y/y in 2022. In terms of inflation, we expect a slight overshoot of the 2% target between the end of 2022 and the beginning of 2023, followed by a stabilization close to 2%. At the 2030 horizon, excessive public debt as well as lower imports as a percentage of GDP – a direct consequence of reshoring – will make potential growth decline to +1.4%, compared with +2% today. In the short-term, the market will reward construction companies benefitting from infrastructure projects (materials, engineering, machinery), while wind and solar energy will also perform well. Additionally, we expect the market to temporarily price a reflation scenario from 2022 onward. Over the medium-term, we don’t expect an overhaul of financial rules, but their execution could be established on a stronger and stricter basis.