Macroeconomy

An unusual election in an unusual year

Coronavirus uncertainties hang over US election

Patience may be required on election night, with close results in battleground states set to be hotly contested.

This year’s US election is likely to prove unusual not only because of the pandemic but also because of incumbent president Donald Trump’s repeated warnings that a huge postal vote will lead to widespread ‘fraud’ and lead to legal battles that could go all the way to the Supreme Court. Trump said the Supreme Court could actually end up picking the winner, as it did in 2000.

 

From mail-in voting to court battles, the US electoral system and voting machinery will come under immense pressure. The convoluted ‘Electoral College’ voting process in particular could be brought to the brink.

 

The Democrats’ candidate, Joe Biden, leads Trump in the latest nationwide polling average by 7 points, according to Real Clear Politics. But Biden’s lead shrinks to only 3.2 points in the ‘battleground states’ that are crucial for a victory in the electoral college, which is within the margin of error.

 

Patience will probably be required on election night, with the wait for a definite result inversely correlated with the margin of victory. The initial focus will be on Florida, which has already started counting mail-in ballots and which should be in a position to announce results on Tuesday night in the US unless the race is very close, as is was in 2000. It’s probably game over for Trump if he loses Florida. If the race is tight, the result in Pennsylvania could prove decisive. Yet officials there have already warned that results from the state will take several days as mail-in ballots are counted.

 

There is a long lag between when the Electoral College officially votes on 14 December and the presidential inauguration day on 20 January. This could prove important given the two pressing challenges facing the US: the need for a new fiscal stimulus, and the dizzying rise in covid19 cases – with potentially the risk of European-style lockdowns.

 

Lockdowns are more probable under a Biden win. To be sure, Biden, if elected, would also push for bigger stimulus, but the scope of such stimulus will critically depend on the Democrats gaining control of the Senate and the size of their majority. Bottom line: near-term US macro risks are to the downside.

 

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