• 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

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).

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).

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).

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, 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).

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