Contribution What investors can expect from Biden administration
Sylvia Sheng
By Sylvia Sheng
We expect the Biden administration to focus its near-term efforts on recovery from the virus, both by improving vaccine distribution and by steering another fiscal stimulus package through Congress.
On the stimulus, Biden will first attempt to work with congressional Republicans, which will limit the size of any bill. If that fails, congressional Democrats will work alone through the budget reconciliation process, which requires only a simple majority, and would thus likely allow for a larger package.
We already expect above-trend growth in the U.S., especially from the second quarter onward. Reinforcing the existing stimulus could turn that into a boom.
Although Democrats control the White House along with both the House and Senate, their narrow congressional majorities, along with the centrism of several Senate Democrats ― not to mention Biden's own instincts ― will constrain any sweeping initiatives.
We expect the administration to push for tax increases at some point, in part to help fund its spending goals in areas like infrastructure and climate. But we think most of these tax hikes will need to be modest to win legislative approval.
For example, the statutory corporate tax rate, lowered in 2017 from 35 percent to 21 percent, may rise again, but likely not beyond 28 percent.
The Trump administration devoted considerable attention to China. Here we anticipate a continuity of broad aims, though not necessarily of means.
We expect the Biden White House to continue pressing for changes in China's behavior, especially in the areas of market access, intellectual property protection and forced technology transfer, but without relying on tariff hikes, and perhaps taking fewer company-specific actions.
Overall, we think China policy will become more multilateral and, as a result, probably slower-moving.
In particular, trade policies under a Biden presidency are likely to be more favorable for Asia than they were under the Trump administration, in our view.
The U.S. is now likely to adopt a more multilateral approach to trade, with more predicable policy actions, leading in turn to diminished uncertainty around trade. This multilateral approach should support business sentiment in Asia, especially in China.
It should also help to boost manufacturing capital expenditures in the region, which has been dragged down by rising U.S.―China trade tensions and the COVID-19 crisis.
That said, we do not think the Biden administration will fundamentally change the U.S.―China relationship. It is difficult to see a U.S. reversal of the recent hawkish trends in China policy, given the increasingly negative views of China in the U.S.
We see the strategic rivalry between the two countries as a structural trend, and believe U.S.―China tensions will persist in the coming year, albeit perhaps below the surface.
While we do not expect further escalation of U.S. tariffs against China in 2021, we believe the removal of existing tariffs and restrictions in the technology sector and capital markets are unlikely to be a top priority for the new administration.
Lingering tension between the two countries should continue to drive production of mainly low-end, labor-intensive sectors to relocate away from China to other parts of Asia, benefiting economies such as Vietnam and India.
In short, we look for a more stable and predictable relationship to emerge between Washington and Beijing, even as the rivalry between the two superpowers persists.
The reduced tail risk from a flare-up in trade tension, along with tit-for-tat sanctions, is positive for risk sentiment, not only in China but also in other key elements of the supply chain ― notably parts of Europe.
The writer is Multi-Asset Solutions Strategist at J.P. Morgan Asset Management.