After one of the most extraordinary US election campaigns in the modern era, Joe Biden has been elected as the 46th President of the United States. Despite several legal challenges launched by President Trump, it looks increasingly likely these will be unsuccessful, and Biden will be inaugurated in January.
US presidential elections are all about the Electoral College (EC). Biden had a clear advantage there, winning five states Trump won in 2016, including Georgia and Arizona, suggesting the Democrats were expanding their electoral base into the south and south-west. He is also on track to win more than 78 million votes – the highest in history by some margin.
However, Biden’s popularity wasn’t enough to help other Democrats on the ballot so Congress remains divided with Democrats controlling the House of Representatives and Republicans the Senate.
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 pandemic under control. It has so far claimed the lives of more than 240,000 Americans – more than any other historical event aside from the Civil War and World War Two. It has also had a massively detrimental short-term impact on the US economy.
The election has created a febrile atmosphere in the US. The ongoing legal challenges and refusal of the majority of Republican legislators to accept the final result are creating uncertainty. It’s clear 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 somewhat aggressive style. His willingness to denigrate international bodies including NATO and the World Health Organisation, while withdrawing from treaties such as the Paris climate agreement, mean 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 Covid, all the key indicators show the underlying US economy is strong. At the time of writing, the Dow Jones is now at 29,300, fully recovered from the loss of a third of its value in the immediate aftermath of the Covid virus outbreak.
The more tech-stock orientated NASDAQ has fared even better, actually rising more than 30% in the last twelve months. The US 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 as he has 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.
As a pragmatic politician who has survived in the Washington DC whirlpool for 47 years, he’s used to working in the bipartisan fashion needed to take the new administration forward.
Biden and Australia
Biden is an old friend of ours and was warmly welcomed when he visited here in July 2016, during the closing months of the Obama administration. In his speech in Sydney, he spoke of the friendship between the two nations and our shared characteristics of ‘grit, integrity, unyielding resilience that has shaped both from the very beginning’.
During his call with the new President-elect, Prime Minister Scott Morrison was keen to accentuate the warm relationship between the two nations, pointing out that 2021 will be the 70th anniversary of the ANZUS Treaty to protect the Pacific.
Biden’s record is one of commitment to multilateral bodies such as ASEAN and it’s hoped that he’ll row back from the more isolationist stance of his predecessor.
There’s an expectation that he’ll be more assertive towards China than the Obama administration. Given the importance of China as one of our key trading partners, it’s hoped Biden will be able to strike the right balance between conciliation and the more bombastic approach followed by President Trump.
How the result could impact markets
The popular old adage – ‘when the US sneezes, the world catch 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 one of our leading trading partners, we’ll certainly feel the benefit of any positive knock-on effect from increased US consumer demand driven by the stimulus package referred to earlier. 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 Chancellor Josh Frydenberg as he grapples with our economic problems. The US has a huge stake in our economy, being the largest external investor in Australia with close to A$1 trillion of investment stock.
Markets reacted positively to the news of Biden’s victory with the ASX200 rising to 6,298 – the highest value since before the Covid pandemic.
In the short term, the delay in the transition between administrations is a cause for some concern, although it’s hard to see any validity in the series of increasingly legal challenges Trump is making. It’s hoped Trump will soon accept defeat and the new administration can start moving forward.
The big elephant in the room is the Covid-19 pandemic and how successfully it can be brought under control, both here and in the US, so we can both start the journey back to normal. The recent positive news from Pfizer regarding a vaccine is encouraging, and an effective roll out in early 2021 would give the incoming president a massive boost.
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