United Kingdom

HAMISH MCRAE: Britain could profit if Biden beats Trump

The US markets are pricing in a Biden victory and if they are right – they have of course been wildly wrong in the past – they think that would be good news for the economy as a whole. 

At least that is the view of the giant US banking group JP Morgan Chase in a conference call to clients last week. 

They expect that the Democrats will make a clean sweep in the US election next week – winning the Presidency and both Houses of Congress. 

Boost?: The US markets are pricing in a Joe Biden victory and if they are right they think that would be good news for the economy as a whole

That would clear the path for another stimulus package which would help bump up the pace of the economic recovery. JP Morgan's concern? The Republicans retaining control of the Senate, for that could further entrench the current stalemate over the stimulus. 

This makes this year's US election different from previous ones. 

Historically, financial markets have done best when there is a split vote – that is when Congress is controlled by a different party than that of the President. 

There has also been a marginal preference in the business community for Republican administrations, presumably because they have tended to favour lower taxation in general and particularly for the rich. 

But while wealthy US families are worrying about how to cope with the prospect of higher taxes – should you pass on wealth to children to escape inheritance duties? – any broad preference among the wealthy for the Republicans seems to have shifted. 

What does all this mean for us in Britain? Let's assume that the boffins at JP Morgan are right. It is, after all, the biggest bank in the US by assets, the nearest thing to American financial royalty. 

Another round of fiscal stimulus means that a huge wodge of demand will be punched into the American economy. That affects the entire world. 

At the moment the only big economy that will show any growth this year is China, and even that uptick will be too small to pull everyone else with it. 

The US seems, in economic terms, to be coming through this recession in rather better shape than Europe, but the recovery may be faltering. 

If and when Congress does pass a stimulus bill, that will help pull us up too. Remember the US is the UK's single largest export market. 

You know the adage: when America sneezes, Europe catches a cold. The reverse is also true. If there is solid growth in the US, it is almost inevitable that there will be growth on this side of the Atlantic too. 

So in the short term what matters is whether the US will get through legislation to boost the economy, and a Biden sweep is the most likely path to that end. 

Longer term the pros and cons for the UK of the different outcomes look less clear. 

Some argue that the UK is likely to get a better trade deal from a Trump Administration than a Biden one. But that is not so clear.

First, you can trade without a trade deal, as we do at the moment, and very successfully for both sides. Second, there is a streak of protectionism in the US that shows up under every Administration. Look at the trade tussles Canada has with the US, despite what is a close and friendly relationship. 

Third, the UK will tend slowly to shift its trading relationship towards the US anyway, simply because it is a relatively fast-growing market, faster than Europe. 

A deal with the US would be good, provided appropriate provisions were made to protect UK standards, but it will be done on the basis of mutual advantage, nothing more. 

The basic point here is that the US economy is bigger than the President of the day. The person sitting in the White House has enormous political influence. 

In a way, the fascination of the rest of the world in every twist of the US election is a manifestation of the cultural dominance of America. 

But in economic and financial terms, what matters is US fiscal and monetary policy. 

The Fed will keep monetary policy loose for the foreseeable future. The big issue now is whether fiscal policy remains equally loose – and JP Morgan think that is more likely with a Biden victory.

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