Does it matter who wins the election?
James Haughey, Reed Business Research - April 1, 2004
If you've ever wondered whether elections really do affect the electronics industry, the answer is yes—but never as much as our worst fears or highest hopes might lead us to imagine. That is partly because the market is largely self-regulated. Congressmen and bureaucrats do not attend standards-setting meetings and probably would not understand the discussion if they did. Telecom has some government regulations, but they are quickly crumbling.
Also, borders have become so easy and inexpensive to cross that a change in the White House occupant is only marginally more important than a similar change in Japan, China, Taiwan or the European Parliament.
Nonetheless, the economic environment will depend on the outcome of the election. Some differences due to that outcome can be readily accommodated and will not flow through to the bottom line. For example, rearranging the budget between civilian departments will not affect the total federal demand for PCs. But altering the size of the budget or the civilian-versus-military split will have an impact on bottom lines in the electronics market. And tax, credit and regulatory differences are significant for the whole economy and will change the scale and mix of private demand.
So you should have contingency plans. The possible outcomes include a Republican (or Democratic) president, each with or without effective control of Congress. Let's contrast the two most likely outcomes, according to political-insider experts. (They get paid to predict elections and have an incentive to be right.) Those outcomes are (1) four more years of President Bush with more Republicans in Congress but not a filibuster-proof Senate and (2) President Kerry with a Republican Congress.
The difference would be between (1) Bush "medium," a change from his policies watered down to "lite" by an often reluctant Congress and (2) a President Kerry who talks the liberal line but cannot get much of it into law. (Remember the last six years of Clinton's tenure?)
How would the alternative outcomes affect electronics by changing the economic and regulatory environment? It is easy to get distracted by the exaggerated differences in the campaign one-liners and the comments of zealous supporters. Let's get past that and focus on what each potential president could likely get changed, regardless of what he wanted before he had to compromise.
Fiscal stimulus: This has been the key driver in the initial period of economic recovery. Bush would provide slightly more, because he believes that economic growth will eventually eliminate the deficit whereas Kerry has committed himself to deficit reduction with tax increases. But changes in the mix are more significant than differences in the total. Bush would predominantly cut taxes on the return on capital gains, and Kerry would emphasize cuts in wage taxes. Capital spending has a higher electronics content than consumer spending, but Kerry's tax cuts would raise private spending more quickly.
Monetary policy: There is less room for different results here, because Alan Greenspan will still be the chairman of the Federal Reserve Board. But he has to bend in the winds from the private financial markets. They will expect more inflation from Kerry, because of his support of expanded social spending. The Democrats say that this offers a long-term payoff of more-productive workers. Maybe. But it is inflationary in the short term, so interest rates, especially the long-term rates critical to investment spending, will rise more quickly—perhaps 50 basis points. That is enough to slow the economic expansion. But even if it is slower, it will still eventually get to about the same level it would have otherwise.
Trade policy: This is much more important to economic growth than it was 10 to 15 years ago. Kerry talks like a "fair" trader but has always supported trade agreements—after he helped to delay them for a year or more to add more spending for unemployment compensation or job retraining. Lots of trade matters critical to expanded electronics trade are on the Congressional agenda. They include expanding NAFTA to Latin America, several trade treaties under discussion with Asian countries, and almost certainly several Democratic proposals to punish foreign outsourcers or install apparel quotas that would anger the Chinese.
A Kerry/Edwards team could significantly restrain trade liberalization, because John Edwards is publicly opposed to free trade. There would be a much greater risk of retaliatory quotas or tariffs on U.S. products, including electronics. The Europeans have shown that they respond quickly and strongly to interference with their exports.
The monetary and fiscal policy differences may or may not be large enough to be measurable. But the trade differences will be, because the president has considerable discretion in trade policy without congressional approval.
So who will win the election? Watch the monthly reports on inflation and employment (see the chart, "Percentage Change in Jobs," below). Several economic models are predicting that Bush will win easily if consumer inflation remains modest and job gains average at least 100,000 a month.
PERCENTAGE CHANGE IN JOBS(Before the election—and the result)
|Year||Incumbent (president or VP)||Annualized job gain 3 months before election day (%)||Result|
|2004||G.W. Bush||1.8 (est.)||??|
|SOURCE: BUREAU OF LABOR STATISTICS
FORECAST: REED RESEARCH GROUP