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Biden Presidency has Economic Implications for Australia

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by Jason Aravanis
Nov 04 2020

While the outcome of the 2020 US election remains undecided, it is increasingly likely that Joe Biden and the Democratic Party have successfully won the presidency. A Biden presidency will have far reaching implications for Australia, particularly on the economic front. A Biden administration will likely reduce trade-war uncertainty, accelerate international pressure for action on climate change, expand the Trans-Pacific Partnership, change the outlook for Australian corporate taxation, and potentially alleviate strain in the Australia-China trade relationship.

If not the end to the trade war, at least more predictability

The Trump administration has been characterised by sudden and significant shifts in trade policy that have harmed both friends and foes alike. Australia was able to avoid much of this disruption due to the long-standing favourable alliance with the United States. However, Australia was not entirely immune, and was nearly subject to a 25.0% tariff on steel and a 10.0% tariff on aluminium in June 2019. Despite not being directly subject to trade barriers, some of the Trump administration’s policies have indirectly disadvantaged Australia.

‘A phase one trade-war cease fire reached in January 2020 required China to buy $200 billion of agricultural and energy products from American suppliers. If this agreement had been carried out, many Australian industries would likely have lost Chinese demand to American competitors, particularly in the Oil and Gas Extraction, Grain Growing, and Beef-Cattle Farming industries,’ said IBISWorld Senior Industry Analyst, Jason Aravanis.

While economic tension between the United States and China will likely persist over the coming years, a Biden administration is anticipated to confront trade issues with greater predictability and awareness of the indirect effects that trade barriers can have on allies such as Australia. Prior to the COVID-19 pandemic, the US-China trade war was one of the biggest factors hampering Australian business confidence. As the effects of the pandemic gradually subside, a return to a predictable globalised trading system, with disputes resolved through multi-lateral organisations such as the World Trade Organisation, will likely inspire confidence in Australian businesses that rely on foreign supply chains.

A Biden administration that offers a more constructive relationship with China may also help reset relations between China and Australia. The Sino-Australia trading relationship has become increasingly fraught in recent years, due to a range of issues including Australia’s response to civil upheaval in Hong Kong, Australian restrictions on Chinese telecom giant Huawei, and strengthened national security barriers restricting Chinese investment in Australian businesses.

‘Over the past year, China has introduced trade barriers for Australian wine, lobster, barley and coal products. Last week, China threatened to impose tariffs on the Copper Ore Mining and Sugar Cane Growing industries. China is currently Australia’s largest trading partner, representing almost 40% of Australia’s export purchases and satisfying over 25% of Australia’s imports,’ said Mr Aravanis.

A Biden administration will likely adopt a pro-market, pro-globalisation and pro-free-trade posture, and may join the Trans-Pacific Partnership (TPP), which President Trump abandoned as one of his first executive orders. Australia ratified the TPP in October 2018, lowering trade barriers and providing Australian industries with greater access to foreign markets.

Climate change

Over the last two months, some of Australia’s largest trading partners, including China, Japan, and South Korea, have pledged to achieve net-zero greenhouse gas emissions by around 2050. Under a Biden administration, the United States is anticipated to join these countries. Australia will therefore be conducting over 70% of its two-way trade with nations that have pledged to achieve net-zero emissions by 2050. Australia will almost certainly face greater international pressure to ramp up its climate change policies under a Biden administration.

The United Kingdom, France and Italy have recently pressured Australia to adopt a 2050 net-zero target, and this pressure would likely increase if President Biden re-pledges the United States to the Paris Climate Treaty, which the Trump Administration withdrew from in June 2017.

‘As one of the world’s largest producers of fossil fuels, strengthening international pressure on Australia would likely increase the threat of regulation in the Oil and Gas Extraction and Coal Mining industries,’ said Mr Aravanis.

Australia, the United States, and corporate tax rates

In November 2017, the Trump administration reduced the corporate tax rate in the United States from a tiered rate that extended as high as 39%, to a single flat rate of 21%. Biden has pledged to increase the company tax rate in the United States from 21% to 28%, hindering major Australian companies that operate in that market. These companies include Boral, CSL, Orica, Aristocrat, ResMed, BHP, Lendlease, and many other major corporations. The impact of this tax increase would also likely influence Australia, where the Morrison Government has faced pressure to cut corporate tax rates from 30% to remain competitive with the United States. Corporate tax rate cuts have been introduced this year in Belgium, France, Greece and Indonesia. The Turnbull Government unsuccessfully attempted to cut Australia’s company tax rate from 30% to 25% in August 2018. In September 2020, the Morrison Government cut the corporate tax rate to 27.5% for small businesses and firms with revenue below $50 million.

Many Australian companies operate in the United States and will likely be affected by stimulus and taxation policies introduced by the Biden administration. However, the Republican party is anticipated to retain control of the Senate, curtailing Biden’s capacity to introduce far-reaching progressive reforms. If the Senate remains in Republican control, President Biden will likely have difficulty increasing the corporate tax rate in the United States.


IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647