SEATTLE — Joe Biden’s election as president comes at a pivotal moment for the local and national economies. In Seattle and elsewhere in Washington, companies are dealing with high unemployment, anxious consumers and other pandemic-related disruptions.
A Biden presidency could have profound effects on the Puget Sound region’s biggest private employers — Amazon and Boeing — and an array of businesses in the state.
Amazon will be eager to see how a President Biden approaches antitrust regulation as well as rules that make it harder for companies to hire foreigners.
Boeing, which has been hammered by the coronavirus and by a trade war with China, will be closely watching Biden’s early moves that could result in fiscal stimulus for airlines, jet sales to China and a federal mandate to wear masks on airplanes.
Washington and other exporters would welcome an end to the trade wars, while struggling local retailers, from Nordstrom on down to mom-and-pops, will be anxious to see whether Biden can persuade Congress to salve the sputtering economy with additional stimulus checks, small business loans, and other pandemic relief.
“You will continue to see the permanent closures of smaller businesses and restaurants, retail and hospitality [businesses] if we don’t have some kind of relief from the federal government,” said Jon Scholes, president and CEO of the Downtown Seattle Association.
In Washington state, like much of the nation, the dominant business issue will be a Biden administration’s strategy for an escalating pandemic that threatens economic recovery.
“First and foremost, the incoming administration needs to be laser-focused on controlling COVID, paired with a plan for sustained economic reopening and recovery,” Markham McIntyre, executive vice president of the Seattle Metropolitan Chamber of Commerce, said in a statement.
Amazon
While a Biden administration would likely mean a break from Trump’s Twitter attacks on Amazon and its founder, Jeff Bezos, Democratic control over the White House and Congress could mean ramped-up antitrust scrutiny of the commerce giant.
Bezos offered congratulations to Biden and Vice President-elect Kamala Harris in an Instagram post shortly after news outlets predicted their victory Saturday morning.
“Unity, empathy, and decency are not characteristics of a bygone era,” Bezos wrote.
One of Bezos’ top lieutenants, Amazon senior vice president of global corporate affairs Jay Carney, was director of communications for then-Vice President Biden before becoming press secretary in the Obama administration.
Biden has staked out policy proposals that would strengthen organized labor, reinvigorate workplace safety regulators, and raise taxes on corporations and the wealthy — all issues that could have a big affect on Amazon.
The extent to which Biden will be able to carry out his plans depends on the yet-to-be-determined balance of power in the Senate. If Democrats can win control, they could advance a proposed overhaul of antitrust law. The House Judiciary Antitrust Subcommittee, before which Bezos testified last summer, in October issued a report calling Amazon “a gatekeeper for e-commerce” with “significant and durable” market power. Proposed remedies for the influence of the tech giants, including Apple, Google and Facebook, include strengthening antitrust-enforcement agencies, limiting acquisitions and perhaps breaking up the companies — though Biden has not endorsed such a step.
Amazon, like most corporations, takes advantage of the U.S. tax code to minimize its tax bill.
Biden proposes raising the statutory corporate rate to 28%. It was lowered under the Trump administration from 35% to 21% in 2017.
Biden also calls for a minimum tax of 21% on U.S. companies’ foreign earnings; a tax penalty on corporations that move jobs to other countries to sell products back to the U.S.; and a 15% minimum tax on corporate book income — also known as unrealized or paper profit. The difference between the book income companies report to shareholders and taxable income reported to, and taxed by, authorities can be substantial.
In 2019, for example, Amazon reported $162 million in federal income taxes on $13.3 billion of U.S. pre-tax income, an effective tax rate of 1.2%. In 2017 and 2018, the company reported a combined $266 million in tax refunds. Amazon also recorded $914 million in federal taxes deferred to future years, which, if paid, would have amounted to a 2019 rate of 7.5% on its U.S. pre-tax income.
“Hard-working Americans should not be paying more in federal income taxes than Amazon or Netflix,” Biden tweeted in late October. “It’s time for big corporations to finally pay their fair share.”
Biden wants to strengthen organized labor, supporting legislation that would impose financial penalties on companies for interfering with worker organizing and shorten the timeline for union election campaigns. Unions have long eyed Amazon’s sprawling operations, but have had little success in the U.S.
Biden also proposes strengthening federal workplace-safety enforcement by expanding the number of investigators and other staff at the Occupational Safety and Health Administration. Injury rates at Amazon’s fulfillment centers are well above the industry average.
A Biden proposal to raise the cap on the number of visas issued annually to highly skilled foreign workers will likely be viewed as a boon by the local tech industry, which hires heavily from foreign talent pools. The Trump administration’s attempt earlier this year to ban large U.S. companies from recruiting internationally was met with vocal opposition from Amazon, Microsoft, and others in Big Tech. Last year, Washington employers hired 7,445 highly skilled foreign workers, nearly double the number hired in 2016.
Boeing
The impact of Biden administration policy shifts on the aviation industry could be significant. Up for political discussion will be a new agreement on fiscal stimulus for airlines, the potential for opening up jet sales to China and a federal mandate to wear masks on airplanes.
New York-based airline industry analyst Bob Mann said the single biggest positive development for Boeing from a Biden administration should be a softening of the trade war with China, which could quickly ease jet sales and boost the return to service of Boeing’s 737 MAX early next year.
“If the new administration tones down the rhetoric with China, they may actually be able to sell some airplanes over there,” said Mann. “As long as [the Trump administration] has had a China trade war as one of its pillars, the likelihood of Boeing selling additional airplanes there has been slim to none.”
Boeing hasn’t sold an airplane into China for more than three years, as orders fell from 210 in 2015 to the most recent sales of just 29 in 2017. Before the trade war and the grounding of the MAX, Boeing expected to deliver fully a third of its 737s to China.
Biden will no doubt want to avoid looking like a pushover on trade issues. However, allowing Boeing to provide billions of dollars worth of planes that China wants could be an easy first step by both sides toward successful negotiations.
Mann said that because China has controlled the spread of the virus so that its domestic flying has recovered to almost 97% of pre-pandemic levels, opening up sales of single-aisle jets to China would help ramp up MAX deliveries next year.
Boeing has about 450 MAXs built but undelivered, and as many as a couple of hundred of those may have been ditched by the airline that originally ordered them. Jets that have been built but no longer have a customer ready to pick them up are known in the industry as “white tails” because they may lack an airline livery painted on the tail.
“There are a lot of MAX white tails that could easily be absorbed in the China market,” said Mann.
To encourage 737 MAX sales in China, Boeing in 2018 built a completion center in Zhoushan where 737s destined for Chinese airlines would be fitted with their interiors. Trump’s trade war rhetoric nullified the sales potential from that move.
After the deadly crashes of the MAX, the Civil Aviation Administration of China (CAAC) has lagged Western regulators in working with Boeing to get the jet back in service. Because the CAAC is expected to approve the MAX to fly again later than the FAA and aviation regulators in Europe and Canada, Boeing CEO Dave Calhoun has said the finished MAXs that are in storage for Chinese airlines are being for now left to the back of the line for later delivery.
A restoration of U.S.-China government relations could transform that prospect.
Bainbridge Island-based aviation analyst Scott Hamilton concurred with Mann on the importance to Boeing of restoring China trade and added that he also expects a restoration of trade relations with the European Union that will affect Boeing.
As a result of a 16-year-long trade dispute at the World Trade Organization (WTO), the U.S. a year ago imposed tariffs on the import of Airbus planes into the U.S. and after a WTO ruling in October, the EU said Monday it will retaliate with tariffs on Boeing jets sold into Europe.
The Trump administration’s hostile political stance against Europe made a settlement of that long dispute difficult. With a Biden administration eager to mend fences with the U.S.’s traditional allies, a settlement is much more likely.
The change in administration will also mean decisions must be made on fiscal stimulus and infrastructure policies to address the broad and devastating economic impact of the coronavirus pandemic, which has hit the aviation business particularly hard.
For U.S. airlines that buy Boeing jets, including Seattle-based Alaska Airlines, the big question is whether a second round of the federal Payroll Support Program (PSP) will materialize. Labor unions that heavily supported Biden have been lobbying for that outcome. The initial PSP prevented layoffs in the industry until this month. Thousands more job cuts are likely in the new year without a renewal of that support.
However, U.S. Senate Majority Leader Mitch McConnell is pushing for a smaller stimulus package, and it’s unclear if it would include further PSP for the airlines.
Mann said that ultimately only controlling the virus can re-create demand for air travel, and save the jobs in the tourism and hospitality industries that depend upon it.
Among the Biden administration shifts on policy to contain the virus, he expects a Department of Transportation mandate that masks must be worn on airplanes and trains.
Because of Trump’s opposition, he said, DOT Secretary Elaine Chao “would never promote a mask policy,” Mann said. That, in turn, has led to daily incidents of airline passengers refusing to wear masks, citing a lack of a federal directive.
“That will likely change,” said Mann.
