With Joe Biden confirmed as president elect after winning the required number of electoral college votes, markets and investors can start to wonder what the Democrat’s presidency will look like.
Over 146m people voted in the 2020 US presidential election, the highest voter turnout ever, resulting in one of the most divisive contests in recent memory.
And despite Biden being officially declared the winner it has not been enough to quell national debate, particularly s incumbent Donald Trump has – so far – refused to concede.
Nevertheless, assuming that Biden will take up the presidency in January, Jupiter Asset Management’s John Chatfeild-Roberts (pictured) has considered what Biden policy will look and what that could mean for investors.
However, there are challenges for Biden’s presidency.
Along with the presidency, US citizens were also voting on the representatives for the two chambers of Congress: Senate and the House of Representatives. And without the support of both the House and the Senate, Biden may struggle to pass through his more contentious policies.
Chatfeild-Roberts, head of strategy for Jupiter’s multi-asset Merlin portfolios, said: “If the Senate remains Republican or is tied when the new administration takes office in January 2021, the more radical areas of Biden’s manifesto would struggle to make much headway, particularly those which are fiscal in nature and require the consent of Congress.
“Unless he can build political consensus by persuasion, a Republican senate would be an effective block.”
Currently the vote for the Senate is completely split, 48-48. 51 seats are needed to gain a majority. There are currently four states are left to count.
As it stands, Biden is set to see some heavy Republican headwinds on numerous policies.
The first will most likely focus on a new round of Covid-19 stimulus, Chatfeild-Roberts said.
He explained: “The most immediate test is likely to be the resurrection of round three of the Covid fiscal stimulus package recently binned by Trump.
“Democrats wanted a minimum commitment of $2.2trn while Republicans refused anything exceeding $1.6trn.”
But there are other major policy areas which Biden promised to pass in his presidential campaign which may now prove more difficult without control of Congress.
One policy was a corporate tax increase, rolling back on Trump’s 2017 tax cuts.
The Democrat said he would raise corporate tax from 21 per cent to 28 per cent, which Trump had previously slashed from 35 per cent in 2017 – a move widely credited with driving the US market’s growth in recent years.
However, without the forecasted ‘blue wave’ of Democrat congressional seats, the tax increase would be difficult for the president-elect to pass.
And failure to do so could significantly hurt his presidency, Chatfeild-Roberts said.
“More broadly, Biden’s failure to deliver on his promise of a significant redistribution of wealth by ‘progressive taxation’ and unwinding Trump’s successful tax reforms, accompanied by giving significantly greater powers to trade unions and allowing free-collective wage bargaining would be sure to have political consequences among left-wing Democrats seeking profound social change,” he said.
“Climate change policy to bring the US in to line with the Paris Climate Accord and to deliver a net-zero carbon economy by 2050 may prove another flashpoint.”
Biden has long been an advocate of supporting climate change and sustainability, laying out a $2trn Green New Deal aimed to do this via the economy and infrastructure.
Chatfeild-Roberts said he questions whether Biden will be “pushing open a door” to radical change on the US’ relationship with climate change and sustainability. Or if he will be blocked by Republicans.
Looking outside of the US, foreign policy is an area Chatfeild-Roberts said Biden could make some easier progress.
The main foreign policy topic regarding the US will remain China, following several years of Trump’s more confrontational approach.
The US-China trade war has been a major concern for markets in recent years, creating uncertainty about established trade deals between the two superpowers and the impact tariffs could have on the economy.
Chatfeild-Roberts said Biden is likely to remain “robust”, when it comes to China in an attempt to win back the support of blue-collar workers whom Trump won over with his aggressive pro-America/anti-China rhetoric.
“Like it or not, Trump has been instrumental in redefining America and the west’s approach to China,” said the Jupiter manager. “Critical of China’s human rights abuses and its stance on Hong Kong, for Biden there will be no return to the active kow-towing towards the Chinese Communist Party as seen under the Obama administration, despite Biden being Obama’s former vice president.”
On Europe, Chatfeild-Roberts said the ‘special relationship’ between the UK and US is likely to take a backseat to relations with the EU, “a significant reversal on Trump’s policy”.
Biden was strongly opposed to Brexit, said the Jupiter manager, and his opinions are “coloured and complicated by his Irish ancestry”.
He added: “He is antipathetic towards the UK and no friend of Boris, a significant challenge the UK government must overcome particularly in pursuit of a UK/US trade deal.”
From an investment perspective, Chatfeild-Roberts said “optimistic” equity investors will be looking for positives that might be hard to find given the muted fiscal outlook, although business unfriendly tax reform and tighter regulation might be blunted.
Chatfeild-Roberts concluded: “As ever, the real barometer of a harder-nosed appreciation of developing sentiment is more likely to be seen on the foreign exchanges and in bond yields.
“As the perceived risks of a ‘hot’ economy and excess longer-term inflation recede and with the likelihood of interest rates staying lower for longer, US Treasury yields have fallen as fixed income investors lose some of their pre-election apprehension.”