At a time when conflicting voices are raised as to when full recovery will arrive, we are pleased to present below a summary of four articles with unique insights that may have an impact on our lives and portfolios in the medium term.

What does a Biden presidency mean for the world?

Katrina Manson, Aime Williams, and Michael Peel, Financial Times

 Read the full article here

President-Elect Joe Biden has vowed to restore US leadership and repair relations with important allies around the world. This article explores Biden’s stance towards Europe, the Middle East, and China, as well as global trade and climate policy. Biden is eager to rebuild the country’s European alliances, which may make him the most “Atlanticist” president in a generation. He is also expected to harden the US’ response towards Russia and exhibit strong support for NATO, a key force in countering Russian aggression. Similarly to President Trump, Biden wants to end America’s wars in the Middle East and strengthen relations by other means. However, Biden has promised to rejoin the Iran nuclear deal that Trump withdrew from, and has no plans to push for a two-state solution in Israel which has been a key component of Trump’s foreign policy initiatives in the Middle East. It is unclear how Biden is going to engage with China, but it is expected to be one of his main foreign policy priorities. Biden will attempt to counter Chinese aggression by strengthening regional partnerships and coordinating with European partners, who hope Biden’s public rhetoric will be much less aggressive than Trump’s. 

On the global trade front, Biden has signaled that he will remain tough on China and wants to lower trade tensions with Europe. Digital taxes, aircraft subsidies, and Brexit are the contentious trade issues between the US and Europe. While Biden seeks progress on digital taxes and aircraft subsidies, a trade deal with the UK once it leaves the EU single market in January is not at the top of the agenda for Biden who has been opposed to Brexit but has accepted its outcome. On the domestic front, the President-Elect has also proposed making federal agencies procure only US services and goods and has expressed the idea for a tax to penalize US companies that move jobs and manufacturing overseas, sticking to some of the same protectionist policies as Trump but being far from his “America First” agenda. Biden also believes the World Trade Organization needs to be reformed to better deal with non-market economies like China. Finally, a huge priority of Biden’s presidency will be climate policy. He has promised to rejoin the Paris Agreement and plans to integrate climate change targets across foreign policy, national security, and trade. His goals are ambitious, targeting net-zero emissions by 2050 and using climate policy as a “bright-spot” in US-China relations, but necessary if he wants to reclaim US leadership in global climate policy. 

The Second Wave of Covid-19 Has Sent Much of Europe Back Into Lockdown

The Economist
Read the full article here

When the first wave of covid-19 swept across Europe, swift and decisive lockdowns helped curb the spread, with the effect of returning the Eurozone to a semblance of normalcy during the summer. Then October hit, bringing with it a renewed onslaught of the virus. Now the case count is doubling every two weeks, threatening to once again overwhelm health services and necessitating a return to lockdowns. As many have noted, these lockdowns are likely to be less effective than the first round due to weather and weariness. With cultural considerations a significant factor, many European leaders find themselves walking a thin line between the measures needed to eradicate the virus and their citizens’ desires to return to normalcy. The test of time has shown deficiencies in several mitigation measures, including self-quarantines, contract tracing, international travel, and reopening methodologies. On the other hand, improvements to testing technologies have opened new doors and will likely increase the efficacy of these efforts, especially as regulatory and price barriers fall. In the end, Europe’s success in combatting the spread depends on its citizens’ personal conviction to comply with safety measures. Epidemiologist David Heymann sees effective education about the virus and its risks as the best approach; overly blunt lockdowns create rebellion and may even be counterproductive. Instead, he argues that people should be informed of the risks and enabled to take preventative measures of their own volition. Europe faces a daunting challenge in this second wave of covid-19; its people must rise to the challenge if they are to emerge victorious.

What Joe Biden and Kamala Harris Mean for the Markets

Avi Salzman, Barron’s
Read the full article here

We’ve looked at some implications of a Biden-Harris administration for foreign policy; we’ll now turn our attention to the markets. In the half-week following Election Day, the S&P posted significant gains (the best for an election week since 1932) as the markets reacted to the likelihood of a Biden victory with a Republican majority in the Senate. Analysts see the split as favorable market conditions, as significant regulatory changes will see friction, creating a “safety bubble” for the markets. The election results also dampened expectations of a large coronavirus stimulus package, an event that would have been likely to increase interest rates. Treasury yields fell Wednesday in response to the news. Other sectors also saw shifts as investors digested the election – for instance, green energy companies saw their valuations decrease as Biden’s green agenda seems less likely to be implemented immediately. Traditional energy, which struggled even under a friendly Trump administration, could slump even more. Healthcare has seen winners and losers given Biden’s support for expanding Obamacare. Pharmaceuticals could come under pressure if Congress limits drug prices. Financials should gain from a recovery, but may encounter pressure from Fed interest rate policies. Biden has also indicated that he will raise taxes on individuals with more than $400,000 in taxable income. With the results of the election still trickling in, the markets will be watching the results closely to shape its trajectory for the next year or two.

Coming Storms: The Return of Great Power War 

Christopher Layne, Foreign Affairs 
Read the full article here

The US and China may be “sleepwalking” their way into a great-power war. There are many flash points in the US-China relationship that could trigger a conflict between them. The author of this article, Christopher Layne, believes “These two countries are on a collision course fueled by the dynamics of a power transition and their competition for status and prestige, and without a change in direction, war between them in the coming decades is not only possible but probable.” Many Americans refuse to believe that such a war is unlikely for several reasons which are rooted in theories of state behavior. One belief is that high level economic interdependence between countries reduces the risk of violent conflict. While the economic interdependence between China and the US may reduce the likelihood of war, they have each begun decoupling from the other’s economy in recent years. Second, many have great faith in the strength of nuclear deterrence. A counter argument to this idea is that technological advances in nuclear weapons have made a “limited” nuclear war, one which would not result in apocalyptic destruction, possible. Finally, some scholars argue that the liberal international order will preserve peace. However, this liberal order is being challenged by changing international dynamics and political developments in the order’s biggest proponents, the US and Europe, who are seeing a rise in populism and illiberal democracy. Rising powers, like China, may see this as an opportunity to revise the structure of the world order entirely, increasing the likelihood of war.

There are striking parallels between the pre-1914 British-German relationship and US-Chinese relations today. Like Great Britain, the US resents its adversary’s rise and believes its values threaten liberalism. Like Germany, China wants to be acknowledged as a powerful player on the international stage and seeks hegemony in its own region. We have recently witnessed an ideological turn in US policy towards China. US policymakers have turned hawkish, treating the rivalry more as a struggle between democracy and communism rather than a traditional great-power competition. Layne believes this is “unwise” and that the US should conduct its relationship with China on the latter, using diplomacy to manage competition and search for common ground; “Ideological contents, on the other hand, are zero-sum in nature.”