With Biden set to take office – how will he impact global business?
Today marks the start of a new era in American and global politics – Democrat Joe Biden will become the 46th President of the United States.
He will, of course, be taking over from outgoing Republican Donald Trump – and with America being so divided in many areas of society and business, Biden will have a lot of work to do, to help turn around the current state of the US.
Business Leader got the views of industry leaders and analysts to get their views on today’s inauguration and what it could mean for us all going forward.
Outlook for US stocks as Biden prepares to become 46th US President
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
A fraught path to power
The last path to power for Joe Biden has been far from smooth, as he’s navigated past bitter campaigns, a contested election result and the deadly storming of Congress. Add in the nightmare of Covid, the grim jobs situation and the ongoing trade dispute with China into the mix and it’s been an incredibly bumpy ride, and one which will continue as he moves into the White House. But even as economic and political volatility has been reignited again and again, the US stock market has risen above the fray, most recently buoyed by the planned $1.9 trillion rescue package for the economy.
The perceived resilience of stocks, partly because many of the industries worst affected by the coronavirus crisis make up only a small proportion of the S&P 500 for example, whereas the tech sector, which has performed strongly during the pandemic, represents a large chunk of the index.
The threat of greater tech regulation
In many ways the behavioural changes Covid 19 has brought about are only an acceleration of digital trends already sweeping through the economy. This has added to optimism that US stocks, which have already seen big gains will still be a safer longer-term bet. But the spectre of regulation is now rising over the tech sector. The US Department of Justice has filed charges against Google, accusing the company of anti-competitive practices to preserve its monopoly over internet searches. Facebook already faces legal action, over allegations it stifled competition, which could see it forced to sell off WhatsApp and Instagram.
The stance of Twitter and Facebook to ban Donald Trump from their platforms has also rattled investors. They fear this interventionist stance by companies, which have previously been more hands-off in terms of regulating content, could not only depress advertising revenues but also increase demands for greater regulation not just from Democrats but Republicans too. New legislation will take time to be enacted, but the winds of change are blowing in the direction of a much tougher stance towards tech, which is likely to put pressure on some valuations. Companies like Zoom and Microsoft should still continue to reap the benefits of the working from home revolution which is unlikely to be unwound any time soon, with video conferencing likely to be woven into the future of the workplace.
Providers of cyber security products are also likely to benefit from the planned ramping up of spending on federal IT systems. Among those likely to be vying for a slice of the cyber pie are firms like Zscaler, Crowdstrike Holdings and Cisco Systems.
Rescue package – a discretionary spending boost
Joe Biden’s plans for a mega rescue package, with stimulus checks of $1400 for most Americans should help consumer focused stocks reliant on discretionary spending. There remains a risk though that with such an uncertain economic outlook, rather than splash the cash, recipients will hang onto it, limiting the overall boost to an economy which is so reliant on consumer spending.
The beleaguered airline sector is unlikely to rebound any time soon, even if consumers have more money in their pockets, given that tough travel restrictions likely to continue with the virus still not under control. With demand for global travel not likely to rebound until 2023, the outlook is still stormy for a raft of airlines. The rescue package dedicates $121 billion to ramping the reaction to Covid, which is likely to benefit not just pharmaceutical firms behind the vaccines, but also health care providers responsible for implementing the coronavirus plan.
The impeachment of Donald Trump is likely to overshadow the passing of the stimulus plan through Congress, but it’s unlikely to be held up significantly given politicians on both sides of the aisle recognise it is long overdue. Longer-term, Biden also has plans to make medical care much more affordable. Although the pharmaceutical sector could come under pressure with a pledge to cap prescription drug prices the wider healthcare sector is likely to benefit from reviving parts of the Affordable Care Act, which was cancelled under the Trump administration. Biden has also pledged to invest billions more dollars on care for children, the elderly, veterans and opioid addicts which could boost providers of health care training.
Stimulus plan to boost infrastructure and green energy
While the immediate rescue package is forecast to pass quickly, what is more likely to hit more of a stumbling block is the further stimulus plan, aimed at ramping up infrastructure and green energy initiatives. There is recognition that America’s crumbling roads and bridges need attention, and that extra investment would help the economic recovery.
What will be in dispute is the scale of that spending package coming off the back of the $1.9 trillion rescue plan. Many Republicans and some moderate Democrats may balk at the prospect of adding another huge bill to the US deficit, but there is recognition that the economy will need a big shove to get going again. More traditional construction projects are likely to get the green light first which could boost the fortunes of companies like equipment maker Caterpillar and Martin Marietta Materials. Dissent in Congress over escalating costs could see some scaling back of plans for a New Green Deal.
However, Biden plans to sign back up to the Paris climate accord, which Donald Trump pulled out of, indicating that the sector should still expect a significant amount of support. Already companies like First Solar and NextEra energy have seen substantial gains since Biden’s win, and that trajectory could continue if the administration does manage to stay on a greener path. The commitment to a greener future expected to be made by Biden could help ease tensions with China, which has also pledge a swift green transition.
However a significant easing of China-US relations isn’t expected in the near term with Biden unlikely to go into reverse on tariffs. He is though more likely to align the US with global partners going forward in tackling Beijing’s economic might.
The effect of higher taxes on corporate America
Joe Biden has come to power on a promise of higher taxes on corporate America and among the wealthiest in society. Corporate taxes are expected to rise from 21% to 28% and another 15% tax is proposed on companies earning $100 million or more on ‘book’ income, the figure reported before tax on financial statements. For individuals making more than $400,000 a year, income rate tax is likely to be pushed up from 37% to just shy of 40%. They could also be subject to extra social security taxes split between employers and employees. Among other proposals is an increase in capital gains tax to almost 40% on incomes above $1 million. It’s not clear when such tax rises will come in, and they could well be pushed into 2022, although the plan to bring in higher tax credits for low and medium earning households is likely to be fast tracked. Increasing corporate tax rates will inevitably nibble into profits of listed companies, with tech stocks which have seen huge profits over the past year likely to be hit the most. Increasing capital gains tax could also have an impact on investor behaviour. We could see some sell offs of large holdings, though it could also lead to wealthy investors hanging onto stocks for longer, in anticipation in a reduction again if Republicans win in 2024.
The key for any investor is to spread the risks so your holdings aren’t over-dependent on policy action or another by the new US administration to prosper. Not being invested in the US would have hurt investors’ performance in the past, but that doesn’t mean investors should overdo it and have too much in the US moving forward. It would also be wise to maintain a healthy cash balance, as a buffer against unforeseen consequences.
What Biden’s inauguration means for US business
Ben Gallagher, co-founder of creative management consultancy B+A, who count Nike, Microsoft and Kellogg’s, shares his views on Biden’s potential impact on his country’s economy.
Joe Biden clearly takes office with an overflowing inbox of items that need urgent action. While the President-Elect’s $1.9tn coronavirus stimulus package is making headlines, there is a myriad of other issues that need addressing not just in his first 100 days. There is already international hope and indeed expectation that the incoming President will commit the United States to re-joining the Paris Climate Accord and will set about overturning a number of Donald Trump’s protectionist economic policies as he begins to rebuild the country’s international reputation.
Perhaps his biggest challenge however is not just conveying a message of unity, but building a credible path towards it. Throughout his campaign he spoke to ‘you’ the voter on a human level. Now is the moment he must translate this one-to-one approach into results. Unity speaks to human values. Listening, compromise, tolerance and acceptance. Values that seem in shorter supply now more than ever. So this challenge could well define his whole presidency – especially as the alt-right pandemic that has risen unchecked through the US in the last 4 years has been joined the by deathly, but equally divisive Covid pandemic in 2020. America’s divisions are deeply entrenched so Biden’s task has now shifted from moving rousing people to campaign and vote to encouraging lasting behaviour change.
And the reality is that disunity and civil unrest will not help his cause. But at least for now the early signs look good. Biden’s folksy “unifier-in-chief” approach, that speaks to Americans in a human, humane way as he starts to outline his vision and his path beyond pandemic will be an asset. It also gives him a chance to slowly rebuild a sense of American national unity that might just tip the balance towards him achieving his longer-term social, political and economic objectives.
Diversity in business
Andi Simon, Ph.D., author of the upcoming book Rethink: Smashing the Myths of Women in Business
Lots of people, it seems, are all for gender equity, inclusion and a diverse workforce. Yet, it is just not happening. It reminded me about the work we do to help them change gender relationships in organizations. We are corporate anthropologists who specialize in helping organizations, and the people within them, do what they really hate to do—namely, change. Fatigue is a great word to capture the challenges that people have when it is time for them to change. They can tell you what has to change, who has to change, and even by when they should change.
Watch carefully as the time arrives and little is changed. There is a great quote about this: “I am all for change, just don’t change me!” This is going to have to change if we are going to bring a diverse workforce together. That inclusive and equitable workforce is essential for our organizations if we are going to capitalize on the power of cognitive and gender diversity. It is urgently needed to benefit from the talent brought to organizations from different racial and ethnic backgrounds.