Next US president ‘must face five huge policy challenges’, credit agency says

9 Oct 20

The US will need to confront several policy challenges with “wide-ranging credit impact” over the next four years, ratings agency Moody’s has said as presidential candidates Donald Trump and Joe Biden face off.


Donald Trump and Joe Biden are the two main candidates for president in the 2020 US election [image: Shutterstock]

Donald Trump and Joe Biden are the two main candidates for president in the 2020 US election (image: Shutterstock)

Each candidate’s programme is set to be “fairly distinct” in key areas, the agency said, and the November election will have the potential to steer the economy in a different direction as it emerges from the recession caused by Covid-19.

Moody’s said the next president, whether Republican incumbent Trump or Democrat challenger Biden, will take charge of an economy “in the midst of a very gradual recovery from the depths of the recession”, and still vulnerable to further outbreaks.

Unemployment will be about twice pre-crisis levels, with many workers in the hardest-hit sectors facing a long time out of their jobs.

Trump has said he will continue to rely on tax cuts and deregulation to spur investment and employment, and has proposed ‘Made in America’ tax credits to support manufacturing.

Biden has pledged to give additional relief to the private sector, state and local governments, and households, and has laid out an economic recovery plan linking economic and environmental policy objectives.

Moody’s said Biden’s plan to support state and local governments “would be positive for them” and would mitigate the effects of lower revenues on public sector employment, helping shore up the social safety net and increase investment in infrastructure.

Aside from the weakened economy, the agency said the main issues that will affect the US credit rating in the next few years will be: healthcare access, increasingly tense relations with China, fiscal policy and government debt, and the environment.

Trump’s pledge to repeal the Affordable Care Act, which made health insurance available to more people, would be credit negative for state and local governments and result in higher spending on free healthcare, known as Medicaid.

Both candidates use a “similar tone” on China, “which suggests that friction around issues of trade, technology, security and human rights will continue regardless of the election outcome”, Moody’s said.

And neither Trump nor Biden’s proposals for the deficit will “materially alter the sovereign’s fiscal profile”, although the former continues to promise tax cuts that would diminish government revenue.

On the environment, Moody’s warned that inaction could lead to increased costs to decarbonise the economy further down the line, and pointed out that Biden’s recovery plan includes a $2trn investment in green infrastructure projects, which although expensive could reduce costs in the future.

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