Not your ‘Average Joe’: what the Biden presidency means for trade & business

26 January 2021

John BriggsGlobal Head of Desk Strategy

View bio

Brian DaingerfieldHead of G10 FX Strategy

View bio

Biden’s First 100 Days

PDF (459 KB)

Download

Other insights

View more insights

12 minute read

In this feature, our specialists give you an in-depth look at how President Biden’s first 100 days in office could unfold – and what that means for the country’s coronavirus response, international trade, and business.

Key takeaways:

  • President Joe Biden has hit the ground running: signing a series of executive orders during his first few days in office, a trend we expect to continue in a polarised political environment
  • His number one priority will be passing coronavirus stimulus: but getting that through (in any form) isn’t guaranteed due to a razor-thin Senate majority and procedural quirks
  • Foreign policy & trade shift to the background – for now: expect a return to Obama-era multilateralism, with a few key differences
  • Predictable, principled & tough stance on China: though it’s unclear whether tariffs introduced under Trump will be removed, linking economic activity with climate targets opens new avenues for US-China tensions
  • A US-EU reset is taking shape: we expect the US to re-join agreements & initiatives, loosen immigration & visa rules, and (likely) scrap auto tariffs
  • Back to the drawing board with the UK-US trade deal: with a new US administration, and without even a skinny free trade deal in place, both countries will need to start from scratch – but could see breakthroughs in multilateral deals

President Joe Biden was sworn into office January 20th – and he hit the ground running, signing a slew of executive orders that in most cases reverse the previous administration’s policies on a wide range of issues including immigration (halting border wall construction, reversing immigration bans), climate change (re-entering the Paris Climate Accord), and public health (mandatory mask wearing in some public spaces).

His number one priority will be passing the previously-announced $1.9 trillion coronavirus stimulus plan (the ‘America Rescue Plan’), but getting that package – or the Build Back Better Recovery Plan, a broader stimulus package to be outlined in February – through in its entirety is hardly guaranteed; legislative numbers required for approval aren’t a given and procedural limitations could make the path forward quite difficult.

The focus on coronavirus stimulus will likely backburner other issues for now – such as foreign policy & international trade, where we broadly expect (with some key differences) a return to Obama-style multilateralism. But as we’ve already seen, executive order does give Biden some leeway to make key changes immediately.

Prefer to listen? Tune in to our latest episode of On Point on Spotify or YouTube for a deep dive on Biden’s first 100 days in office.

Two paths to coronavirus stimulus passage: regular order, and reconciliation

Any stimulus package would require approval from both the House and Senate, and while a relatively large House majority for the Democratic Party should provide smooth sailing for Biden’s priorities through Congress, Senate approval will be tougher: Democrats hold a razor-thin majority in the Senate, and the presence of the filibuster, a rule that allows Senators to delay a vote by extending debate, could effectively stall legislation indefinitely.

Democrats have strongly signalled a willingness to use a process called ‘budget reconciliation’ to get one, or both, of their stimulus plans over the line if they are stonewalled in regular order (the usual processes & procedures governing debate and approval of legislation).

Budget reconciliation the likelier of the two – but there are risks

Budget reconciliation – a process generally used to stop the minority party from participating in the legislative process – is among the most consequential loopholes in American law-making because it allows for major legislation to be passed without the threat of a filibuster. That benefit comes at some cost, though: the process is more limited, and would take more time, than a bill that can win approval in regular order (see table below).

Regular Order vs. Budget Reconciliation – The Basics

 

Regular Order

Budget Reconciliation

House Approval

Simple Majority

Simple Majority

Senate Approval

Filibuster-proof majority (60)*

Simple Majority (50 + VP tiebreaker)

Scope

Unlimited

Only include line items that directly impact spending, revenues, or debt limit

Special Pre-requisites

None

Budget Resolution with reconciliation instructions

How Often?

Unlimited

Only one budget per fiscal year

Deficit Limits

None

Must not exceed reconciliation instructions within 10 years and no budget impact outside of a 10 year window. Scoring done by non-partisan Congressional Budget Office

Source: Committee for a Responsible Federal Budget, Tax Policy Center, Tax Foundation, NatWest Markets. *Technically a simple majority is needed to pass legislation, but to end debate and go to a vote at all a filibuster threat would need to be broken with 60 votes. So, in practice, 60 votes are needed if we assume at least one Republican would filibuster.

While the legislative math may be difficult, we think Biden holds an important piece of leverage: pressure. The optics of voting against a landmark stimulus package, amid rapidly rising case numbers, could ultimately pull centrist lawmakers towards supporting it.

The America Rescue Plan seeks to increase and extend supplemental unemployment benefits passed in December last year, but a failure to get something done by mid-March will result in a lapse of those benefits – so we view that as a soft deadline for getting a deal done in some form (though there’s a risk it could take longer, and be smaller, than many expect).

Want to go deeper? Click here to download our special report for more analysis & insight into Biden’s first 100 days in office

Executive orders – little market impact

As heightened partisanship in the US in recent years has made passing laws through traditional legislative means more challenging, US presidents have increasingly turned to the executive order to push their priorities (over 8 years, President Obama declared 276 executive orders, and over four years, President Trump declared over 200).

Including those already signed during his first few days in office, we see early-term executive orders from Biden falling into two broad categories: Trump orders Biden will reverse, and new orders we think Biden will initiate. In both cases, we see limited near-term market impact, but with the latter, there is a greater potential for direct economic effect – for instance, if further executive orders on climate change lead to a larger regulatory burden weighing on business sentiment.

The administration may consider forgiveness of some student loan debt via executive order, though we expect the administration will first attempt to pass student loan forgiveness through legislation. However, we do anticipate an extension of moratoriums on student loan payments, as well as on foreclosures and evictions.

Foreign policy & trade – a return to multilateralism, and a reset

Broadly speaking, we think President Biden will pursue a return towards Obama-era multilateralism and strengthen security and economic alliances with the country’s democratic partners (see below for a summary of his administration’s expected geopolitical stances).

Biden’s Expected Geopolitical Stance: Summary

 

Expected Trade / Foreign Policy Stance under Biden

China

Predictable, principled, but still tough stance on trade

May leave Phase 1 deal / May be open to removing Trump tariffs

Pursue "Carbon tax / quota", which may mean new tariffs

Euro-area

Trade war / auto tariff risk ends

May be open to more cooperation on global taxes

Work with European Union (EU) to re-enter / rework Iran Deal

UK

Free trade negotiations stall as new admin brings new priorities / leaders (USTR)

UK “Back of the Queue” on trade? Pivot to EU

UK and US may gain trade pact if both join TPP

CEEMEA

New sanction risk for Russia on electoral interference

Support for Israel but more critical of Israeli policies

Latin America

Less confrontational border policy with Mexico

Climate focus may have negative implications for commodity producers

May reduce Venezuela economic sanctions

Effort to rejoin the Trans-Pacific Partnership (TPP) may benefit signatories Chile, Mexico, Canada

Source: NatWest Markets

China – predictable, principled, but still tough

Expect an ongoing strong US stance against China in the medium-term as Biden seeks to build a consensus amongst allies. That approach – one that seeks to leverage US allies to add pressure on China – would be more consistent with principles espoused under President Obama, and unlikely to change at the drop of a tweet.

Biden’s past criticism of Trump’s tariffs on Chinese goods suggests he would be open to removing the tariffs put in place under the Trump administration, but whether he does or not, his desire to link economic activity with climate targets suggests a new potential realm of economic tension between the US and China.

Europe – hitting the reset button

We also anticipate a lot of positive headlines regarding Europe – like those seen after the US re-joined the Paris Climate Agreement: reaffirming commitment to NATO, potentially cooperating with allies on Iran once again, and the like. And we also expect Biden to loosen immigration and visa policies, which may aid labour supply.

But Biden’s views on US-EU trade were not well specified on the campaign trail or in the months since his electoral victory. His overarching goal of restoring American partnership with the country’s democratic allies implies a shift toward a more cooperative relationship with the EU, so we think the risk of tariffs on European autos is essentially gone. We also believe pre-election risks of a Biden presidency taxing digital services, linked with deeper international cooperation on corporate taxation, have subsided.

UK – new management, new priorities

Prior to finalising the Brexit deal (which our specialists explore here), we felt the uncertain relationship between the EU and the UK stood in the way of major progress on a US-UK free trade deal.

With the Trump administration now out, and a skinny free trade agreement not yet complete between the US and the UK, we fear that the process or formalizing the US-UK relationship in the post-Brexit world may effectively need to start over. There were reports late last year that an agreement on some key provisions had been found, though a new administration may bring with it a fresh set of priorities, particularly on reported sticking points between the Trump administration and the UK (agriculture, financial services, and pharmaceuticals).

There is also the risk that the Biden administration moves away from a bilateral UK-US deal and in a more multilateral direction with the UK: both the Biden campaign and the UK government have expressed interest in re-joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (also known as CPTPP, or simply TPP).

 

For questions on this article, get in touch with your NatWest corporate & institutional representative or contact us here.

US Election Watch


This document has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this document has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this document, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this document. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this document and any issues that are of concern to you.

This document does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright 2020 © NatWest Markets Plc. All rights reserved.