What to expect from Biden in the US and with allies?

The Democratic challenger, Joe Biden, has won the US presidential election, defeating the incumbent, Donald Trump.

The first priority of the Biden administration will be to develop a national strategy to contain the spread of the coronavirus (Covid-19) epidemic. Mr Biden has appointed a coronavirus task force composed of health and policy experts, which we expect will begin laying the groundwork for a robust testing and prevention programme. However, as Mr Biden will have no power to set new guidelines until Inauguration Day, on January 20th 2021, we expect case numbers to remain high in the next three months, magnifying the public health and economic crises that he will take on in January and prolonging the US economic recovery.

The next priority will be to push a second economic relief bill through Congress in early 2021. Republicans and Democrats grew close to agreeing on a new bill in October, but ultimately neither party wanted to concede to the other’s demands ahead of the elections. Congress may agree to pass some stop-gap measures during the “lame duck” period to provide emergency relief, probably including a fresh round of lending to small businesses. However, a comprehensive relief bill is likely to pass only in early 2021.

With Mr Biden as US president, the transatlantic relationship will improve, leading to an easing of the threat of a US-EU trade war, a return to an Obama-era focus on multilateral engagement and greater scope for co-operation on climate change. However, tensions with the EU will endure in a number of areas; defence spending within NATO and an OECD proposal for a digital services tax will remain contentious issues.

The US will take a tougher stance than the EU on Russia, which will mean continuing US-EU frictions. With regard to Russia, we expect Mr Biden to be more confrontational than Mr Trump, putting the US at odds with some countries in the EU, which will pursue a more pragmatic approach. The US will remain opposed to the Nord Stream 2 pipeline and is likely to impose additional sanctions on Russia, but we do not expect these to target European firms, as this would damage the Biden administration’s efforts to rebuild transatlantic ties. Mr Biden may also pursue a harder line against Turkey, whose provocative actions in the eastern Mediterranean, Libya and elsewhere have already prompted harsh rebukes from the US, making sanctions a possibility.

Another issue to watch is the Iran nuclear deal, the Joint Comprehensive Plan of Action (JCPOA), from which the US withdrew in 2018. Mr Biden has stated that he would be willing to re-open a dialogue with the Iranian authorities, which would be welcomed by France, Germany and the UK, as they were involved in brokering the deal. However, with trust wearing thin, we consider it unlikely that Iran will rejoin the JCPOA. European firms with trade or financial ties with Iran will continue to be affected by US sanctions.

Despite the upcoming change in the US administration, ongoing tensions between the US and China will continue. We have long believed that the US-China conflict is over long-term economic dominance, and that it will play out in the trade, financial and technological spheres. There is little prospect of an improvement in bilateral relations in the coming years. The trend towards greater competition will continue, but the US’s handling of the conflict will look different under Mr Biden’s presidency than it has under Mr Trump’s leadership. We expect the rivalry between the two countries to shift increasingly away from trade and towards other issues, including intellectual property (IP) protection and market imbalances created by China’s economic model. Whereas US foreign policy under Mr Trump has been isolationist, we expect Mr Biden to revive engagement with allies to tackle China’s rise; however, the willingness of US partners to work on these issues remains to be seen.

We expect that a Biden administration will favour sanctions on Chinese individuals and government entities, investment restrictions, and tax incentives to encourage US companies to reduce their supply-chain reliance on China and to relocate production to US soil. US efforts to contain China’s rise will accelerate the bifurcation of the two markets, which will have massive long-term implications for the global economic landscape.