The 2020 US election has been one of controversy and strife, as much of the world was glued in anticipation. What happened was anti-climatic – with many losing interest and only finding out Biden had secured the US presidency from social media updates on Saturday evening (Singapore time).
With Joe Biden as president-elect, what can Singapore business owners (not) look forward to over the next 4 years? As a caveat – the first thing you can expect is probably Trump to contest the official result outcome, so expect a few more weeks of strife.
What Trump’s Corporate Tax Cuts Did For The U.S. Economy
It would not be proper to give an introduction to the current state of affairs in the U.S. without discussing the impact of the tax overhaul introduced by Trump in 2017 and the consequences of reversing this bill (Tax Cuts and Jobs Act, 2017).
The global economy in 2017 was strong. It likely did not need a tax cut, but Trump introduced one anyway. The result of this was that the Federal Reserve released an over-abundance of liquidity into the economy and as a result increased the overall national budget deficit, leading to the reduced firepower to fight the current COVID-19 crisis although the Fed is still introducing more stimulus packages today.
With increasingly hostile rhetoric backed by an (obvious) insecurity about America’s place in the world, Trump also launched a series of trade wars with the world’s second-largest economy, China. This led to many American companies having to shift parts of their supply chain operations back to the U.S. or to find alternatives. One of those alternative growth markets has been Southeast Asia, with Vietnam looking to be one of the countries benefiting the most from the shift away from China.
What Biden Wants To (Re)Build
Joe Biden wants to repeal the changes from Trump’s tax cut, specifically by raising taxes on the ones that benefited the most from the tax bill of 2018: high income earners and corporations. By taxing the people and institutions that benefited the most from Trump’s tax cut, Biden hopes to recover some of the much-needed capital to be reallocated to infrastructure and healthcare projects.
Biden argues that these tax cuts drastically increased income and wealth inequality. He also wants to re-establish the US’ longstanding alliances with NATO and Europe, reaffirming America’s place in a globalised world.
With the bases covered on what the outgoing and incoming presidents stand for, here are 5 things Singapore businesses can expect from Joe Biden’s presidency.
#1 The World Will Be Split Into Localised Regions
With Biden promising greater cooperation from America in the international stage, one might think that the world will become more globalised once again, but it would be hard to placate the hostility that the U.S. has created against the rest of the world. More countries have already put in place nationalistic leaders and policies, and it would be hard to see globalisation and international cooperation take place at pre-COVID levels anytime soon.
Biden also wants to raise the federal minimum wage to US$15/h and is aggressively pro-union, which would likely make US less competitive globally as costs of business rise in US. Protecting low wage workers would likely cause global companies to move parts of their businesses overseas rather than bring back to the US. Businesses that have a global reach will look for other countries to export cheap manufacturing to, a task that Southeast Asian countries like Vietnam are happily picking up.
Businesses will also likely opt to choose regional partners instead of ones that are halfway across the globe due to the relative ease of travel and cultural understanding. The divide between U.S. and China will continue to grow as China continues to strengthen and challenge the global order. As a result, many businesses, including those in Singapore, may eventually have to choose which “sphere of influence” they want to belong to; Asia-centric or Western-centric.
#2 Clean Energy Is Back In Business
Biden also wants to invest in clean energy projects, proposing a whopping US$2 trillion in clean energy investments. This will also likely speed up the race towards a more sustainable future, making clean energy startups more attractive globally. Businesses in the clean energy space in Singapore would likely feel the indirect benefits of such a move.
With Trump walking out of the Paris Climate Accord deal and rejecting the idea of climate change, Biden will have to reverse many policies that were enacted during Trump’s term as President. Fortunately for Biden, most of Trump’s policies were signed via Executive Order, which means they can be reversed by the incoming President.
#3 The Trade War With China Will Likely Continue
Trump’s big idea as president was to preserve the U.S. lead over China. His administration adopted three big policies to achieve that end: a) a big corporate tax cut to boost U.S. growth; b) tariffs and other anti-trade measures to harm Chinese growth; and c) a big increase in military spending to deter Chinese aggression. The big tax cut that was effected at the end of 2017 delivered mediocre results.
The U.S. economy grew by 2.9 per cent in 2018 and 2.3 per cent in 2019 — pleasant but unremarkable, and short of Trump’s promise of four or even five per cent.
While Trump is headed for the exit, relations with China will remain frosty with Biden himself promising a “tougher stance” on China throughout his election campaign. Notably, Biden has promised to hold China accountable over its treatment of Uighurs in Xinjiang and its crackdown in Hong Kong.
Biden also says that he would shore up U.S. alliances, which he says Trump has badly damaged, to present a united front against Beijing and that he would invest in high-tech research and education to make the U.S. economy more competitive. This would mean that the race against China will only heat up.
#4 More Tech Workers Will Move Out Of The U.S.
It is likely that talented workers will seek work outside the U.S. when COVID ends, due to the increased hostility of the public against high income workers and immigrants. As such, many of these tech workers may set up shop elsewhere in the world where there are fewer hoops to jump through. With technology enabling remote working and tech jobs in demand around the world, it is no surprise that tech workers from Silicon Valley will be very welcomed in Singapore.
A recent survey by Business Insider has shown that within five years, an estimated 40% of tech roles will be located outside the US and 43% outside the state they are currently in. The survey also found that 71% of employees at tech startups in the US would move to a different country if they could do their job remotely.
Singapore business owners might be able to take advantage of talent flight to hire top talent from the U.S., although that might come with a much heftier price tag; the average software engineer in Silicon Valley with 1-2 years’ experience gets paid nearly US$100,000 per annum on average, although that figure could drop with remote working and flexible work structures now on the table for discussion.
Singapore needs to be open to such opportunities, rather than shun immigration herself to stand to benefit.
#5 Competition Heats Up In Southeast Asia
With Western and Chinese businesses competing for market share in Southeast Asia, Singapore businesses need to continue to innovate and form regional partnerships in order to compete effectively and leverage on the intensification of business opportunities.
With firms like Grab expanding their reach into financial services, it is giving traditional financial institutions and a run for their money. In order to scale effectively, firms will have to consider alternative go-to-market strategies and markets that have been ignored by bigger competitors.
With an increase in tech talent from developing countries like Myanmar where hiring a developer is significantly cheaper than in Singapore, Singaporean employees will also have to continually update themselves in order to stay relevant on the global stage. Singapore and Singaporean firms will also have to commit to helping local employees upgrade and learn new skills.
Change Would Have Come In Some Form – Regardless Of Who Won The U.S. Presidency
There is no doubt that the world looks to change rapidly over the course of the next few years. The President of the United States may be the most powerful person in the world for now, but that is set to change over the course of the next few years with leaders of emerging superpowers vying for the top spot. At the risk of a splintered world, business owners will have to navigate an uncertain future, fraught with risks and opportunities. One thing is certain however: the world is changing at a faster pace than ever before.
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From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.
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