Under a Biden administration, if Democrats win both chambers of congress and take control, it could weaken further. Higher taxes, reduced tension with China and control of Wall Street may all have negative ramifications on currency values and thus cause it to decline further.
Accelerating progress toward a sustainable trade agenda appears difficult without the backing of most Republicans.
Trade
An Obama or Biden administration may pursue a more sustainable trade policy than what has been pursued under Trump, taking into account not only economic gains but also strengthening social capital (such as worker welfare) and environmental protection as objectives of trade activity.
As such, it is expected that under a Biden-Harris administration there will be further expansion of trade activities to meet national security needs while simultaneously strengthening domestic production capacity for high-growth technologies such as artificial intelligence and 3D printing where significant investments may be necessary to meet future demand. Furthermore, both Biden and Harris may retain or increase tariffs on Chinese goods in sectors like semiconductors, solar cells, and steel products.
But we anticipate that progressive members of the Democratic party will pressure Biden to adopt some of its policy proposals, such as implementing carbon border fees or including emissions reduction commitments in new trade agreement deals. Such policies would cause great disruption to global trading systems and could potentially spark new rounds of retaliatory tariffs.
Policy changes implemented under Biden could have a bearish impact on the dollar by increasing costs associated with U.S. exports relative to those from other nations, but we believe a less aggressive fiscal policy and more conciliatory attitude with China could mitigate this effect – helping narrow its trade deficit further by means of a weaker dollar. As we move into the final weeks of campaigning, many questions still exist regarding how markets may react in light of an election result; we invited six investment experts to share their perspectives about what a Biden victory might mean for US and Asian equities as well as foreign exchange rates – their contributions can be found below.
Energy
There is little doubt that a Biden administration would welcome the restoration of global trade norms that the Trump Administration has dismantled through policy decisions, something likely to have profound macroeconomic, geopolitical and market ramifications.
What remains less certain, however, is whether the Biden administration will pursue more stringent policies favored by progressive wings of the Democratic party. These may include imposing what amounts to a carbon tariff on imports from countries deemed inadequate when it comes to climate policies or looking to embed emission reduction commitments within trade agreements – something never before done and which remains unknown what impact such an unprecedented combination would have on trade flows.
Uncertain is what the new Biden administration will do about the shale oil boom and its implications for oil prices. Harris backs continued shale drilling while Biden has signaled their desire to balance out energy policy more holistically; for example, they may less enthusiastic about further expanding renewable portfolios to combat climate change while more concerned with cutting energy costs by restricting greenhouse gas emissions.
An administration led by Biden may be less inclined to support electric vehicle (EV) tax credits as their focus may shift towards cutting consumer energy costs more broadly. This could have an adverse impact on EV production due to potential changes to U.S. liquids production that put additional downward pressure on oil and LNG prices.
However, we anticipate the return of expansionary fiscal and regulatory policies will help sustain a robust economy while stimulating cyclical currencies to rebound. This should especially be true if the new administration takes a more measured approach to foreign and trade policy than has been the case under President Trump. In such an instance, we anticipate further gains for the dollar against major currencies; however, protectionist trade policies under Biden administration would likely prove counter-productive both to dollars globally as well as against stocks specifically.
Taxes
If Biden wins, his administration would likely maintain similar trade policies as those implemented under Obama. Tariffs to counter China’s unfair trading practices might remain, although with greater input from allies and like-minded trading partners ING analysts suggest.
However, a Biden win could resurrect tensions with China over technology and trade. US and Chinese policy makers could find themselves disagreeing over how to regulate high-tech industries like electric vehicles and batteries, which could ratchet up tensions further.
Domestically, analysts anticipate a Biden administration will prioritize multilateral cooperation with Europe and Asia while relaxing tariffs. This may provide relief to global markets as it will bring predictability into global affairs, according to analysts.
An administration led by Joe Biden will likely reflect more centrist, pragmatic Democratic party leadership as well as an expanding network of likeminded trading partners and allies than Trump’s more protectionist policies. Prior to the elections there was internal battle within the Democratic party between traditional centrist wing Senator Elizabeth Warren and Bernie Sanders-led progressives (including Sanders himself ). But these differences were put aside so they can unite against Donald Trump, with Biden winning likely reflecting this outcome.
An Obama presidency would likely bring less significant tax policy changes compared to Trump, given that any such reforms require congressional approval for implementation. As such, the dollar may become less volatile.
An expected Biden win would likely mean the rollback of some of Trump’s climate change policies, including loosening green regulations that currently impede oil and gas drilling and coal mining operations. This would likely boost shares in energy companies while weakening the dollar further; though this effect might be mitigated by an increased fiscal stimulus package from SEB’s Lauri Halikka.
Budget
The election has created a new political reality. On key issues like trade, immigration and fiscal policies (including the Fed’s role), a Donald Trump administration may impose far more profound changes on the economy and markets than previously expected – this may have an enormous effect on global growth, inflation and equity returns (please refer to our recent paper “2024 US Elections: Macro, Geopolitical & Investment Perspectives).
Biden holds control of the Democratic Party agenda as leader of his own party, however his policy positions appear to emphasize sustainable trade policies over conventional ones. One such proposal involves charging countries that do not implement strong climate policies with an emission border fee. His proposed carbon border fee represents a groundbreaking amalgam of trade and environmental policy; yet implementation may fail to bring relief to a fragile trading system.
An administration led by Joe Biden would likely take trade action against China, perhaps more willing than Donald Trump’s team to negotiate new trade agreement deals containing market access commitments than previous administrations have done. Unfortunately, divisions within Democrats have greatly limited any such efforts from being implemented successfully.
Emergence of a new political dynamic has altered the oil market outlook significantly. We still face numerous factors that could increase or decrease oil prices, including potential disruptions of supply in countries like Iraq and Nigeria; but now the main factor influencing prices is US sanctions against Iran which could increase significantly.
The next presidential term will be of great significance to investors, marking one of the most pivotal periods in U.S. history. A Democratic win could bring opportunities and threats alike to different sectors – particularly those with high concentrations of manufacturing capacity – but ultimately what matters is what policies are implemented by either side and their effects on both economies and markets.
