It used to be a well known saying that when America sneezes, the rest of the word catches a cold. The US economy is still a global leader, even if it does not have the pre-eminence it once had, and the personality and policies of the person living at 1600 Pennsylvania Avenue for the next four years still matter to the entire planet. The first question is, will the election of Democrat and Former Vice President Joe Biden be a tonic for the rest of the world, or keep us all feeling under the weather for a little longer?
The second is, what will the effect be on your own personal economy?
Taking over the Trump legacy
Donald Trump’s economic policies seemed initially to have been good for the US. The leading economic indicators suggested that the domestic economy was demonstrating steady rather than spectacular growth – at least until the coronavirus hit. Not only is the disease exacting a vast and tragic human toll, but it also ended the longest economic expansion and bull market on record, and robbed tens of millions of Americans of their livelihood.
Last spring, businesses across the country temporarily shut down to contain the spread of the virus. As a result, the economy saw its worst economic downturn in roughly a century, and the fall in the US stock market was dramatic. It has been one of the major factors in the fall of President Trump.
President Biden’s manifesto has included measures to support businesses through the epidemic, and to strengthen the economy and add jobs in the long term. Programmes include $1.3 trillion for major building projects to upgrade the nation’s transportation systems, schools, and more.
Markets may see a Biden win as positive news. Biden has promised to roll back Trump’s tax cuts at least for the highest income groups and the risk of friendly fire in the trade war might diminish even if tariffs might not be reduced just yet. A weaker Dollar is possible consequence, with the chance of a larger fiscal stimulus reduced – meaning that other currencies may benefit.
What about international trade?
Assuming that Covid can be brought under control, the new Biden administration will probably continue with the America first policies of the past four years, supporting the recovery and growth of the domestic economy and the US stock market.
His opinions on trade policy may not be as different from those of his predecessor as might have been supposed. He has stated that economic security is national security, and again like Trump – promised to create millions of manufacturing jobs and to reduce America’s dependence on China. His “Made in America” plan seems to echo the “Make America Great Again” manifesto of the outgoing leader. America’s trading partners hoping for change may be disappointed.
There may or may not be trade deals to come under the Biden administration, but he has suggested that they can wait, until after “America has invested in Americans”.
The Trump trade war has taken most of the blame for the global manufacturing slowdown, and a new president that follows suit may not be ideal for the rest of world.
Will the UK be affected?
The UK’s import-heavy economy is more resilient to the impact of US tariffs than countries such as China and Germany, which export more than they import. But there are exceptions – some sectors, such as steel, already under pressure because of Brexit may be affected.
British investors are exposed because they are active in international markets, with their foreign holdings concentrated in the US. Any recovery in the US may be very good news for them.
However, for most of us in the UK it seems likely that the events on the other side of the Atlantic will pale into insignificance compared with the ongoing and unpredictable effects of Covid and the uncertainties of Brexit coming close behind.
What should you do?
We live in uncertain times, and the election of Joe Biden may make little difference to the level of uncertainty we already have to deal with.
Any impact on international investments and on long term prospects may be minor – but whether or not you have an internationally diverse portfolio, it might just provide another reason to reassess your current financial plans.
If your financial planning is still based on assumptions that are pre-covid as well as pre-Biden, it may be time to call us at Continuum, and see what changes you need to make to your own economic policies.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products or investment strategy, you should seek independent financial advice before embarking on any course of action.
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