What the US Election result means for the UK and the economy

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After one of the most extraordinary US election campaigns in the modern era, it’s becoming increasingly clear that – subject to legal challenges – Joe Biden will become the 46th President of the United States.

US presidential elections are all about the Electoral College (EC). The victor of each state wins all the EC votes from that state – from Wyoming with just three, up to California with 55.

Given the polarised nature of US politics, it looks as though Biden’s EC victory will be relatively good. He’s recaptured at least two of the ‘blue wall’ states which were a key factor in Trump’s shock win in 2016. (Note that the Democrats are the ‘blue’ party in the US and Republicans are the ‘reds’ – the reverse of what we’re used to here in the UK).

Biden has also made inroads in the Sun Belt states, with some news sources declaring a win in Arizona and the Democrat retaining a strong chance in Georgia. For the latter, it will be the first time a Democratic candidate from outside the South has won the state for sixty years.

His popularity wasn’t enough to help other Democrats on the ballot, however, so Congress remains divided with Democrats controlling the House of Representatives and Republicans the Senate.

Biden’s inbox

Many incoming presidents have faced daunting challenges – Franklin Roosevelt in 1932, Ronald Reagan in 1980, and Barack Obama in 2008 come to mind. Biden too, has a lot to concern him in his inbox.

First and foremost, he needs to find a way to get the Covid-19 virus under control. It has so far claimed the lives of more than 230,000 Americans – more than any other historical event aside from the Civil War and World War Two. It has also had a hugely detrimental short-term impact on the US economy.

The election has created a febrile atmosphere in the US. The scenes of masked militia at polling stations, the legal challenges to the counting of votes, and the storm over the accelerated promotion of Amy Coney Barrett to the Supreme Court show that the States is far from ‘United’ at the current time.

There’s also the challenge of repairing relations with many countries, who will have felt bruised by President Trump’s rather bombastic style. His willingness to denigrate international bodies such as NATO and the World Health Organisation, and to withdraw from treaties such as the Paris climate agreement, means that Biden has a lot of diplomatic bridges to build.

Reasons for optimism

Despite the challenges, there are some positive signs for the president-elect as he starts planning his administration.

If you ignore the short-term impact of the Covid-19 virus, all the key indicators show the underlying US economy is strong. The Dow Jones was at 28,000 in November last year and at the time of writing it is now at 26,500 – this despite losing over a third of its value in the immediate aftermath of the Covid-19 virus outbreak.

The more tech stock-orientated NASDAQ has fared even better, actually rising more than 20% in the last twelve months. The economy bounced back by 7.4% in Q3 and, having peaked at more than 14% in April, unemployment is now back down to 7.9%.

To add momentum to the economic recovery, there’s already a $1.4 trillion stimulus package ready to go in Congress. It was passed by the House of Representatives before being held up by President Trump. With Biden now in charge, and with him having cordial relations with the Senate majority leader, Mitch McConnell, there’s a decent chance this could be passed when the new Congress starts in January.

The other positive for Biden is a straightforward one – he’s not Donald Trump. He’s run very much as a senior father figure, a unifier in the Reagan mould. That means the victory is very much his, and he enters the White House with a fair amount of political credit in the bank.

Biden’s position as being above the political fray will be accentuated by the upcoming debates that will take place within both parties. While the Democratic Party will obviously need to face up to their failure to win the Senate, the Republicans too will need to look at their future.

Demographic changes evidenced by Biden’s strong showings in Georgia and Arizona suggest their electoral base is shrinking, especially when you consider they have only won one voting majority in the past eight presidential elections.

Biden and the UK economy

The popular old adage – ‘when the US sneezes, the world catches a cold’ works equally well in reverse. When the US economy is buoyant and growing, its sheer size and scope helps lift the economy of other nations.

As our biggest individual trading partner, ahead of the likes of Germany and France, we’ll certainly feel the benefit of any positive knock-on of increased US consumer demand driven by the stimulus package. This could happen relatively quickly if the package is passed by Congress – likely to be early in the new year.

Even without the new package, the US economy is showing signs of recovery, which will provide a welcome boost for our Chancellor as he grapples with our economic problems. These problems will only be heightened if, as seems likely, we end the transitional period by leaving the EU without a trade deal.

Commentators here are split as to whether a Biden presidency makes a UK/US trade deal more or less likely than had Donald Trump won a second term.

Leaving aside the way much of the media like to see things purely in terms of personalities, the good news is that Joe Biden is a pragmatist. You don’t survive for 47 years in the political whirlpool of Washington DC without being able to work in a bipartisan fashion.

The US will want a trade deal with the UK because they’ve always seen free trade as being central to their economic wealth – and we’re the seventh largest nation in terms of GDP in the world. With both sides therefore wanting a deal, it’s very likely that one will be negotiated.

Summary

Joe Biden’s reputation as an empathetic deal maker provides grounds for cautious optimism that we could expect some kind of trade deal in the medium term.

The big elephant in the room is Covid-19, and how quickly a vaccine can be found. US pharmaceutical companies are making encouraging noises, and an effective roll out in early 2021 would give the incoming president a massive boost.

Get in touch

If you want to find out what the US election means for you, or if it’s time for your financial review, please get in touch. Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

 

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