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On Saturday, November 7th, after days of uncertainties, the major U.S. news networks projected Joe Biden to be the winner of the 2020 U.S. Presidential election. While that means that the Democrats may have won ‘the big prize’, they also lost a handful of seats in the House of Representatives and gained only one seat thus far in the U.S. Senate[1];  for now, the Senate remains in Republican hands. In January 2021 Democrats will need to win both Senate seats in the Georgia’s ‘run off’ (neither of the popular vote winners in the November elections won the required 50% of total votes in order to avoid a run-off) in order to avoid a Republican majority. If the Democrats could win both run-off races, the Senate would essentially be 50 – 50 and the new Vice President-elect Kamala Harris would serve as the decisive vote for any 50 – 50 deadlocked voting. To what extent President-Elect Biden would be able to implement the more liberal policies outlined during his campaign, therefore remains uncertain at best.

A complete reversal of the Tax Cuts and Jobs Act of 2017 (TCJA) is unlikely. A major part of the TCJA was the reduction of the top federal corporate income tax rate from 35% to 21%. This rate reduction, together with the Buy American and Hire American Executive Order implemented by President Trump encouraged many international companies to leave more substance in their U.S. subsidiary whether that was to take advantage of the tax rates or to retain local staff. For other companies increased substance was helpful when applying for investor (E) and intercompany transfer (L) visas for its founders and management.

Without a majority in the U.S. Senate, it is unlikely that the increase of the federal corporate income tax rate suggested by the Biden campaign will be realized. However, even if the Democrats would control the Senate, there are individuals within the Democratic party that may not support a big change in the corporate tax rates. For European companies this means that there will be little reason to change strategy and decrease substance in their U.S. subsidiary.

Another reason to maintain the current course of action is that a Biden Administration may seek to maintain policies that protect U.S. jobs. With high unemployment rates still affected by the economic crisis, it is unlikely that we will see a quick turn-around with regard to the Trump Administration’s restrictions on foreign work permits. The Biden Administration also may seek to implement a higher federal minimum wage (currently $7.25/hour). If the Biden Administration manages to increase the federal minimum wage (this is a fairly large IF), it is unlikely to have a major impact for most European companies because they already have their offices and employ in jurisdictions where the local minimum wage is already higher (for example New York City currently has a minimum rate of $15/hour).  Additionally, many of the U.S. based employees that are on payroll are typically higher skilled workers already being compensated in excess of the proposed minimum wages.

What may change significantly under a Biden Administration is a less confrontational approach towards trade agreements. This could alleviate much of the uncertainties that surrounded customs duties that has impacted European exports in recent years. Many European companies will be better able to anticipate the landed cost of their product in the United States which in-turn allows them to better compete with U.S. manufactured products.

Finally, a Biden Administration will likely focus on renewable energy once again and move away from the support that the Trump Administration provided to the fossil fuel industry. Many pundits, both financial and political, anticipate that the healthcare and technology sectors will also benefit from a Biden Administration. Generally speaking, these are areas where European companies see many opportunities in the United States.

In summary, we anticipate that a change of administration will not substantially impact the European companies. The U.S. elections clearly did not show an overwhelming mandate by the citizenry for broad and sweeping changes and President-Elect Biden appears to want to work together with others as opposed to force a hand – even if the Senate was to be controlled by the Democrats. Business in the U.S. in general has responded accordingly and the stock market rose sharply on Monday following President-Elect Biden’s speech Saturday.

[1] There are still two races that have not been called but will likely remain Republican and two races in Georgia that are heading to a run-off on 5 January 2021.

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