Merlin Weekly Macro: Writing Joe Biden’s report card

Joe Biden’s term has finished. His report card reads as follows: “Started with much promise. Some notable hits but too many duds. Faded rapidly towards the end to finish in defeat and self-delusion. Summary: Democrats, you can do better than this”.

For a man who had spent five decades planning his route to the top, the result was not at all what he hoped it would be. Time, age, obstinacy and his wife’s vanity eventually got the better of him. It left him both a lame duck president and a one-termer who also sunk the electoral prospects of his Democrat replacement candidate.

Haunted to the point of self-destruction by Donald Trump

Biden arrived at the White House full of vim and vigour, declaring national unity and a new national sense of direction after what he described as the Trump anarchy. With Trump still dominating the Republican caucus and conscience, even out of office, and Biden unable to resist declaring anyone who backed Trump as deranged and dangerous, national unity was never going to happen. Making an enemy of half the electorate by telling them they are mad, bad lunatics is never smart politics. That after Trump’s fraud conviction in the Stormy Daniels case, Biden implied in a hubristic, sanctimonious and unguarded statement of vindication that the Federal pursuit of Trump on criminal charges was politically motivated, was confirmation among the Trump-cult conspiracy theorists that theory and reality were one and the same. Trump’s poll rating rose while Biden’s dropped. Using the courts as an act of political vindictiveness was a bad call.

The near genius of the Inflation Reduction Act

He brought the US in from the cold on climate change. That earned him a big tick internationally and on the political left at home. His environmental policy, encapsulated in his Inflation Reduction Act which included over $300 billion of tax incentives to ‘green’ the economy, was almost a work of genius: it managed simultaneously to pull off the trick of combining US protectionism with globalism. All ‘green’ products had to be stamped “MADE IN AMERICA!” to qualify, but ‘foreign’ products were welcome wherever the origin of their ownership so long as they were made or assembled in the US. It was a big green light for foreign inward investment into the US and the creation of new jobs in a future-proofed sector. His policy rapidly changed world trade flows and investment patterns. Most notable was the reaction of German carmakers switching investment in new electric vehicle production capacity to the US, terrified that failing to do so would cut them off from their biggest export market by value.

Inevitably there were politics at work too: the tax incentives (and therefore the job creation prospects) were most heavily loaded in favour of impoverished, bust-up Rustbelt regions: with a second term in mind, Biden was targeting Trump heartland. But the damage was already done: he had lost too many of what should have been his core constituency by being rude about them, while they saw through the cynicism of how he was trying later to buy their votes.

‘We’re gonna go big!’. Too big.

Together with his Treasury Secretary, Janet Yellen (Jay Powell’s predecessor as Chairman of the Federal Reserve), his economic strategy was encapsulated in one phrase: “we’re gonna go big!” If President Obama had been accused of being asleep at the wheel failing to provide economic support in the aftermath of the Global Financial Crisis, that accusation was not going to be levelled at Biden and Yellen in the wake of the pandemic. They were going to spend voraciously: climate change policy, healthcare, welfare and benefits, helicopter money (writing stimulus ‘stimmy’ cheques to every adult to get them to spend) were the key areas for expenditure.

It became known in the markets as the “Reflation Trade”. How much inflation did we all want? In the event, we got rather more than we bargained for.  Exacerbated by Putin’s manipulation of the energy market as part of his pre-invasion plans for invading Ukraine, what both Biden and Yellen misjudged was the extent to which inflation would surge out of control through a combination of exogenous factors, a homegrown federal spending splurge and a large Treasury-induced rocket under the money supply. They created a double-upward financial vortex: rampant inflation requiring urgent fiscal tightening through higher interest rates, as well as rapidly rising debt. It culminated in January 2023 with the administration breaking the maximum permissable level of government borrowings (at that time set at $31.4 trillion) allowed by Congress. For six months it was in the balance as to whether the US would close down public services (and risk strikes and riots on the streets) or default on its loans (in which case prompting a systemic melt-down in global financial markets).

As it was, a grid-locked Congress averted either crisis by kicking the can down the road: it suspended the debt ceiling. Left essentially unchecked, the debt has subsequently risen to 122% of GDP and now sits at $36.1 trillion, the increment over two years being the equivalent of the GDP of Japan.

Biden’s economic legacy is therefore like the Curate’s Egg: bearing in mind the US is the biggest economy on the planet at 25% of GDP, it still has a growth rate that is the envy of the free world and with full employment; on the other hand, debt is unsustainable and were it a spending department, debt interest would have the second biggest federal budget. While inflation has abated to a rate of 2.9%, above the Federal Reserve target rate of 2% but well below its peak of 9.1% in June 2022, the electorate was unable to forgive Biden and Yellen for the ravages caused to their own home economics by the ‘cost of living crisis’. Aside from immigration, if anything else directly cost Biden the election, that was it.

Foreign disasters: a calumny of bad decisions

But if his report card domestically is mixed, Biden’s foreign policy score sheet is close to calamitous. Straight out of the traps, he set about systematically dismantling Donald Trump’s Abraham Accords which had tentatively restored relations between Israel and several key Arab states including Saudi Arabia. Despite being a cornerstone western ally (and a formal candidate for Major Non-NATO Ally status), Biden publicly declared the Saudi regime to be a force for evil. His opprobrium was partly because of Saudi’s responsibility for the murder of dissident journalist Jamal Khashoggi, and its poor human rights record, partly it was revulsion at the force with which Saudi was supporting the Yemeni government against Iranian-backed Houthi rebels in a domestic civil war but who were regularly also lobbing missiles into Saudi Arabia and killing Saudi citizens. Not surprisingly, considering itself disrespected by Biden, Saudi refused to cooperate with the US President when he was forced to beg the Kingdom to ramp up oil production to prevent a price spiral in the wake of Putin’s invasion of Ukraine. It was ironic that Biden would later have to recognise the Houthis as a terrorist organisation when, supporting Hamas in the Israeli conflict, they became a direct threat to western shipping in the Gulf and US naval forces were engaged taking military counter-measures.

Trying to get the US back into the Iranian Nuclear Containment Treaty (which Trump had walked away from, declaring it a ‘bad deal, a really bad deal’ and producing evidence that Iran had never had any intention of compliance), Iran ran rings around the hapless Biden. After four years, he never did succeed in a new US-Iranian accommodation. Indeed, almost immediately before Iranian Revolutionary Guards attacked a US military post in Jordan, killing three US soldiers, Biden had just released $10 billion of sanction wavers in Tehran’s favour despite being warned that the funds would almost certainly be used to support Iran’s proxies intent on the extirpation of Israel. The sanctions waver was a programme that ran into 2024, months after the Hamas attack on the Kibbutzim.

Biden is a strong Europhile. He is even more fiercely proud of his Irish ancestry. Both are his personal prerogative. However, the combination of the two became a substantial conflict of interest in the Brexit negotiations focused on the sensitivity of the Good Friday Agreement (GFA) peace accord between the United Kingdom and Ireland. The US is the GFA’s legal guarantor, there to see fair play and even-handedness. Biden’s personal loyalties were too obviously partisan not least with his political sensitivity to the big Irish Democrat vote in the north-eastern States.

The disaster of Afghanistan

But it was in Afghanistan and Ukraine that he showed appalling judgement. Afghanistan should be chiselled on his tombstone. The Afghan campaign was a NATO operation. It was therefore a great surprise to all, especially the British who were the biggest and all-enduring partner with the US, that in April 2021 Biden unilaterally and without reference or a by-your-leave to his allies declared that all US forces would be out by that September and air cover operations would cease immediately. Without air cover, NATO ground operations against the Taliban were unfeasible. Afghan government troops were in no condition to fight without NATO support. Within four months resistance had crumbled so rapidly that the Taliban were in full control of the country, even surprising themselves at the rapidity and completeness of their victory. Who will ever forget the harrowing scenes of thousands of Afghans trying to flee via Kabul airport, desperate people clinging to the outside of military transport aircraft as they took off, bodies falling many feet to the ground. Twenty years of NATO blood and treasure and tens of thousands of Afghan security forces’ lives wasted at the stroke of a US presidential pen, and a whole population condemned to a near stone-age existence under a brutally repressive regime. As we wrote at the time, the ramifications of NATO’s very public literal disintegration would have reverberations all the way from Taiwan, via the Middle East, through Ukraine and up to the Baltic. And so it came to pass.

‘Acceptable’: a small word with big consequences

In relation to Ukraine, outmanoeuvred by Angela Merkel, Biden failed to press the sanctions regime against western companies involved in the construction and operation of the Nord Stream 2 gas pipeline between Russia and Germany. It was a gift to Putin while pulling the rug from under President Zelensky and the Ukrainian economy. The best Biden could do was to get Merkel to agree a tawdry and modest aid programme for Ukraine. If that was bad, worse was to follow: only a matter of weeks before Putin’s tanks crossed the border, but while they were demonstrably amassing in Belarus, Biden publicly said that a Russian incursion into Ukraine was ‘acceptable’, so long as it didn’t go ‘too far’. This from the President of the United States, alongside the UK the only non-Russian guarantor of the 1994 Budapest Memorandum guaranteeing the sovereignty of Ukraine and the absolute sanctity of its borders. It was the go-go-go! signal to Putin.

It took the unlikely figure of Boris Johnson to take firm leadership in NATO to help Zelensky. It is undoubtedly true that the US military and humanitarian aid support to Ukraine dwarfs that of any other country. But when it came to the commitment of heavy armour, jet aircraft and long-range missiles, the US constantly had to be led by others. With divided support in Congress, Biden’s strategy was to keep Zelensky in the war, as far as possible to minimise the damage to the US taxpayer and to ensure no military escalation outside Ukraine’s borders. That has been successful. But it should never have been like this in the first place. Whenever Zelensky shakes hands with Biden after another begging meeting, you can imagine him looking into Biden’s eyes with the unspoken words, ‘you know that I know that we both know what’s going on here’.

China: mixed messages or cake and eating it?

Biden’s policy on China was a mix of protecting US interests, particularly in technology and intellectual property, and engaging in areas such as climate change. Trump’s 2018 tariffs were maintained. If the strategy was deemed pragmatic, it also laboured under the lack of strategic clarity as to how Biden saw China: a trading partner, a fellow traveller with whom to engage in constructive dialogue, or a rival super-power and malign player? To this day, nobody is much the wiser.

‘Is that a joke?’

So to his final week in office and the ceasefire between Israel and Hamas. Who knows how long or if it will stick. That is for the future. That it has happened at all can only be celebrated. Biden’s support for Israel since the Hamas attack in October 2023 has mixed ‘iron clad’ with arm-twisting conditions. That is the nature of diplomacy in a highly charged and volatile situation. Biden had just buried former President Jimmy Carter, broker of the Camp David peace agreement between Egypt and Israel in 1978. There can be no criticism of Biden wanting to secure peace in the Middle East as the final act and legacy of his own presidency in 2025.  But it was demeaning to the Qatari and Egyptian negotiators in his speech effectively to claim the credit for the deal, and to the Israelis for the significant damage wrought on Hezbollah and Hamas and the fall of the Assad regime. As for the immaculate timing, Donald Trump’s immediate threat to ‘rain hell’ on Iran’s proxies had nothing to do with it. Surely not.

In the end, Joe, the joke’s on you. Enjoy your retirement.

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