Biden: his time

We assess the implications of Joe Biden’s US presidential election victory.

• Biden plans a comprehensive repudiation of his predecessor’s policies.
• The US will rejoin the Paris climate accord and the World Health Organisation, and lift the travel ban on a handful of majority Muslim countries.
• But the absence of a ‘blue clean sweep’ means campaign pledges on social and health-care changes will be difficult to deliver.

Hit the ground running

President-elect Biden has signalled plans for an immediate repudiation of President Trump’s most high-profile policies. On his first day in office, Biden plans to issue executive orders, mandating that the US rejoin the Paris climate accord and the World Health Organisation. He will also repeal a travel ban placed on a handful of majority-Muslim countries.

Fork in the road for foreign policy

It seems clear that Biden’s victory is a harbinger of a general move back towards a more globalised US than we have seen over the last four years, and that he will look to reverse some of the ‘America first’ foreign policies pursued by President Trump. However, it is by no means certain that Biden will jettison all of these policies, not least because anti-China sentiment appears to have a strong groundswell of support in the US. The rhetoric employed towards China may not be as harsh, but the direction of policy is unlikely to be dissimilar.

The difficulty of satisfying social policy demands

The frequently predicted ‘blue clean sweep’ – victory for Biden alongside a Democratic House of Representatives and Senate – failed to materialise. This is good news for financial markets because a ‘blue clean sweep’ would have made it easier for the Democrats to pass potentially costly welfare legislation and potentially revisit the Trump administration’s tax cuts.

However, the absence of a ‘blue clean sweep’ will make it difficult for Biden to satisfy his political base’s call for new social policies, given the US’s poor governmental financial position on account of its efforts to tackle the pandemic. Higher taxation or further increases in government spending could cause headaches for the Democrats, and what has been pledged by the party in terms of social and health care may prove hugely challenging to actually deliver. If the Republicans are confirmed as in control of the Senate – no foregone conclusion at this stage given the necessity, under Georgian state law, to stage an additional ‘run-off’ vote in January as no candidate reached 50% of the vote – law-making will be difficult.

Pressure on the health-care sector?

The market could also become concerned about the impact of the Democratic win on the pricing of drugs, and the health-care sector could come under pressure as the party is likely once again to campaign to reduce the price of medication just as it has done regularly since Hillary Clinton first began to lobby for it in the 1990s. The current ‘mixed-house’ outcome in Congress will, however, reduce the chances of meaningful impacts in this area.

There may also be a renewed critical focus on big tech’s domination in retail, but Biden may not want to be too confrontational here given that online shopping has benefited so many people through the lockdown and beyond.

Trump challenge

Following Amy Coney Barrett’s elevation to the US Supreme Court, the Court’s ideological balance has shifted 6-3 in favour of conservatives, and this may encourage Trump to pursue his plans to challenge the election outcome. This scenario could produce a period of political instability which could prove unsettling for financial markets. As we write, Trump is showing no signs of backing down as his legal advisers search for evidence of voting irregularities, but the Republican Party appears in no way united in its willingness to support his action.

Brexit uncertainty

Biden’s election could also have an impact on the UK’s continuing Brexit negotiations by influencing any potential future trade deal between it and the European Union. The Democrats have a considerable Irish supporter base in some of the larger Democratic-voting cities, and both House speaker Nancy Pelosi and Joe Biden have voiced their strong opposition to any changes in UK policy that could threaten the Good Friday Agreement. The UK government will be keen to court the new administration following some previous minor media skirmishes between Biden and Prime Minister Boris Johnson, but may find itself battling for face time with European Union governments, notably Berlin and Paris. Furthermore, the UK may also now find it harder to forge a beneficial trade deal directly with the US given Biden’s less-constructive view on Brexit.

Authors

Paul Markham

Head of Global Opportunities