Post-USA Election Impact on Global Markets
We all know the outcome of the world’s most-followed political event, the US presidential election, not because they are exciting, but they affect the geopolitics of the world, thus affecting the global markets.
For instance, Donald Trump’s pro financial growth and development stance impressed the market most, but his aggressive foreign policy also made the global market nervous and shaky.
With the Democratic nominee, Joe Biden expected to take the oval office on January 20, 2021, let’s check how the US presidential election will affect the global market. Here, you should know, Joe Biden was the vice-president of the United States during the Obama tenure. Therefore, it’s much likely that Biden will continue with the Obama legacy and will take a balanced approach to foreign policy matters.
Effect of US Elections on Global Market
The impact of the US presidential election is not just felt by the world’s largest economy, but also it significantly impacts the global financial market, trade, and geopolitics. But, let’s first concentrate on the domestic impact of the election.
There is a general thumb rule in the US political circle, Republican leadership is good for the stock market as they tend to favour policies that will boost the company’s earnings and drive job growth. The reforms like corporate tax cuts we have seen during the rule of the Trump administration. Whereas, Democrats like to focus on redistribution of wealth, social rights and benefits.
Since Biden has been elected as the next US president and will be taking over the chair at a critical time, when the economy has been severely impacted by the Covid-19 pandemic, it is unlikely that Democrats will risk harming the financial markets, as it will have severe implications for the already battered economy.
And, with the weakened bullish momentum of gold coupled with rock bottom interest rates, it will continue to support the market higher and force investors to bet on equities.
Impact on the Global Market
Now, coming to the global markets, investors around the world would have been more bullish, if Biden had won both the presidential election and the Senate. But, with the latest trends showing Republicans will have the majority in the Senate, the expectations are mixed.
In the case of both the wins by Democrats, the size of the US fiscal stimulus to shore up the economy could have been as high as $5 trillion. This would not only be positive for Wall Street but also for the emerging economies. In the Asia Pacific region, only India and China are witnessing the positive flow of investments from FIIs in 2020.
With stimulus measures expected to come in mid-November or early-December, it remains to be seen whether it is worth $2 trillion or $3 trillion. Figures lower than on the expected lines could trigger a global sell-off in equities and fall in the value of USD.
Spending Policy Scenario
As per a UBS report, under the Biden administration, the spending in healthcare, education and infrastructure will get a big boost. The expected outlay can be somewhere around $0.9-1.1 trillion in healthcare, $700-800 billion on additional infrastructure in next ten years, with an extra $75-125 billion in discretionary spending. This stepped-up fiscal spending will have a positive impact on the materials sector, in which Australia, India, Indonesia and Singapore will benefit the most.
To fund the increased expenditure on infrastructure, healthcare, and education, the Biden administration is likely to go for a hike in taxes with the partial rollback of Tax Cuts and Jobs Act in 2022. And, higher taxes on high-income individuals and corporate taxes. It will give them an additional $3-4 trillion in taxes next 10 years.
Trade and Foreign Policies
The Trump administration is known for its aggressive foreign policy stance and often overshadowed with a tariff war with multiple economies. The US-China trade war has significantly impacted many economies around the world and has also slowed down the global GDP growth in the pre-Covid-19 era. Also, there was much uncertainty with Trump’s foreign policy that made the global market a bit shaky.
Now, under the new administration, after the outbreak of Covid-19 and China’s role in it, the foreign policy is expected to remain tough towards China, especially on trade. But, will get stabilized in the next few quarters. A positive outcome will help to drive the prices of base metals and commodities.
Biden’s return is expected to bring back the rule base international policy with a more multilateral and more predictable approach than his predecessor. His main challenge will be to regain trust among allies, bring stability in the market, and make global trade less tariff-centered. Also, there are high chances of reviving the TransPacificPartnership (TPP).
With Biden already announced, he will lift the suspension on H-1B visas for skilled professionals, work permit for spouses, this will definitely improve the earnings prospects of Indian IT industry, which has been volatile and underperformed before the previous US elections.
Also, Biden has vowed to re-enter the Paris Agreement on climate change as soon as he takes the office. The entry of the US will pave the way for access to critical technologies on renewable by poorer countries and also invest in renewable energy.
Biden’s presidential term will be more positive for the US as well as the global economy. It will mark the total shift from “With or Without us” approach to a policy, during Trump’s tenure to a policy that the United States can achieve more when it works together with partner nations.
However, the road is not as smooth as it seems. Biden’s next four years’ economic and foreign policy will depend on the make-up of the Senate, which is going to the Republicans. Therefore, a Republican Senate and Democratic House are more likely to deliver a scaled-back stimulus package comprising of health, infrastructure in the medium term, which could trigger a sell-off in the global market in the short term. In the long term, the foreign and trade policies of the Biden administration is likely to positively impact the global market. But, for most, they would like to see the Biden administration’s stance towards China and manage China’s clout in the Asia Pacific region.