Photo: Matt Johnson/Flickr
How will the Biden administration that has just been installed affect global business? The answer could have a significant impact on enterprises of all kinds across the world—especially, but not limited to, corporations with a global footprint in terms of supply networks, clients/markets or both. A lot of analyses and predictions have been made in anticipation of what promises to be a significant revamp of US policy positions.
Sound bases for many of the predictions are retrospective analyses of positions that Joe Biden has already taken or involve looking for clues in the appointments and nominations that have already been made public. Another set of predictions focuses on the influential players and constituencies whose views will have to be considered because of the role they played in the electoral victory of Biden and Harris and/or to make it possible to block Republican control of the Senate thanks to the election of two Democratic senators in Georgia.
Combining both sources of insights into a clear framework can help to turn those predictions and analyses into intelligence of practical use for global corporations. A simple approach to such a framework could consist of two dimensions. One dimension considers two aspects of policy decisions and interventions (policy direction and pace, and regulatory compliance burden); the other focuses on four areas affected by policies or interventions (trade, technology and data, finance, and the environment).
Before going into what to expect for each of the four areas (and the interactions between them—for instance, between finance and the environment), it is worth keeping some common threads in mind. Specifically, there are two quite fundamental shifts that we should expect in the Biden administration’s policies compared to the Trump period. One is stability, resulting from a deliberate, informed, coherent approach to decision-making rather than an impulsive, egocentric one. The other is the pursuit of “win-win” options, instead of allowing a “zero-sum” mindset to pervade policy-thinking. Both differences will have wide-ranging implications that could easily be underestimated and should prove to be positive factors for growth and efficiency of the global economy and, hence, for businesses focused on the generation of long-term added value.
These two policy aspects are just an analytical device to explore the nature of the policies and interventions. And the four focus areas do not correspond only to specific markets—they will have direct effects on enterprises in those markets but they are also avenues with potential impact on a wide range of corporations, almost regardless of their size and geographical footprint.
|Policy direction & pace||Regulatory compliance burden|
|Tech & data||New safeguards—quick start||Medium|
|Finance||Return to enforcement—gradually||Medium-high|
|Environment||New commitment—quick start||High|
It will be obvious that, even as a starting point, this is not a comprehensive framework for examining the aims and likely decisions of the new US administration. Because of the explicit emphasis on business, it focuses only on relatively narrow economic dimensions and does not consider major policy fronts such as health care, immigration, national security and global governance. The pace of action in these four areas will also be affected by the demands placed by all other issues on the attention span and political capital of the new administration’s leadership.
The shift in trade policy is unlikely to be swift but will nonetheless have significant implications for businesses—in two main forms. Most firms and supply chains will be affected by the overall approach—which is likely to involve a prompt dismantling of many of the haphazard protectionist measures of the last four years and a gradual return to trade diplomacy (as opposed to confrontation), both through bilateral agreements and through multilateral ones, including reconciliation with a central role for the WTO. While inclined to contribute to restoring the global trade order (including for dispute resolution) and to forging consensus on a rule-based approach to emerging issues such as digital and services trade, the Biden administration will not treat this as an urgent priority.
The shift in trade policy is unlikely to be swift but will nonetheless have significant implications for businesses
Because of the influence of key constituencies, businesses will be more specifically affected when their market position involves: the availability in the US of critical supply goods (as in the case of drugs or medical equipment); next-generation technologies; and manufacturing sectors, either vulnerable to further US job losses or where offshore production raises ethical concerns such as child or forced labour. While the “reshoring” of manufacturing will continue to receive much rhetorical attention, it is the specific focus on supplies and technology with national security implications that will get the attention in practice, as indicated by the campaign pledge to “use the full power of the federal government to rebuild US domestic manufacturing capacity of our supply chains for critical products.”
There will be some increased regulatory compliance burden affecting supply chains and related logistics, but it is unlikely to be a significant change unless “Buy American” procurement rules, unilateral “local content” regulations and documentary provisions in trade agreements extend beyond what we can expect at this point.
Technology and data
This is an area ripe for increased government intervention—nationally and internationally—with three main avenues to consider: privacy and data ownership protection; anti-trust legislation and interventions; and taxation of digital and other “intangible” transactions.
On privacy and on data ownership and transfer, the new administration is expected to be more assertive in defense of the national and public interests than has been the case recently. An overhaul of the rules governing internet is overdue as those norms predate many of the most popular apps and services today, and remote work and socialising during the pandemic have made data privacy protection gain new urgency.
The new administration is expected to be more assertive in defense of the national and public interests than has been the case recently
Both for governments and tech companies, the best option might be to evolve towards an international standard—probably modelled on the EU’s General Dara Protection Regulation. Expect action on this front to proceed deliberately, with ample opportunity for consultation—and attempts from all sides to influence the outcome. The likely result, though, is a stronger regulatory overlay affecting digital platform companies, data repositories and internet access.
In terms of competition, tech companies have grown more powerful in recent years and become perilously more akin to oligopolies. They have continued to amass data, wealth and social influence (including, in some cases, serving as unwitting tools for disinformation—raising the conundrum of who controls content). There seems to be bipartisan support for action on this front, and there are some legal actions already underway based on existing anti-trust legislation. The questions are how much broader the scope of these actions will become and how much impetus there will be to expand legislation to support more expansive action; the answers are likely to point to greater assertiveness which will also trigger preemptive negotiations.
The growth of digital and other intangible aspects of the global economy has led to policy debates about the taxes that digital companies pay and where they pay them. Many digital business models (including social media, e-commerce market, cloud services and service platforms) do not require a physical presence in countries where they make their sales, reaching customers through remote sales and service platforms.
But consumption and business taxes and accounting standards are largely extensions of old rules to new players. The digital tax discussion has pointed to the need for an international agreement without which individual country policies are likely to intersect or contradict one another, resulting in lopsided taxation and arbitrage.
All of this indicates that there will be much effort in coming years to develop new policies and international agreements and that the Biden administration will want to play an important role in shaping the new norms—both by national example and by international consultation. Expect quick, initial action on some fronts and, eventually, a significant regulatory compliance burden. However, the complexity of the issues and the tensions between objectives will make sweeping progress hard to achieve and long in coming.
Again, this is an area where there seems to be bipartisan support, and action should be expected. There are two main areas to keep an eye on. One is anti-money-laundering and corruption-fighting efforts, and the other concerns the scope of activities and standards for banks.
The Corporate Transparency Act passed after overriding outgoing President Trump’s veto will, for the first time, require millions of U.S.-registered businesses to report their true beneficial ownership to the U.S. Treasury Department’s Financial Crimes Enforcement Network. This measure should make it harder for criminals and autocrats to set up anonymous shell companies to hide their money. It also represents a step up in terms of anti-money laundering legislation. The U.S. Treasury Department now has to issue corresponding regulations. Under Secretary Yellen, it is expected to move swiftly on this—and to fight back against lobbying groups’ attempts to try to broaden the existing exemptions.
The Corporate Transparency Act represents a step up in terms of anti-money laundering legislation
Trump’s time in office led to a roll-back of banking regulations intended to crack down on firms in the years since the financial crisis. Although some of the regulatory reprieve for small- and medium-sized banks will likely be maintained, large banks will come under increased scrutiny, and the “Volcker Rule” (allowing banks to resume proprietary trading, invest in venture capital and work with the hedge funds and private equity firms they were once blocked from) is likely to come back in some form. Part of the Biden agenda will also be to increase consumer finance protections and to re-join international efforts on financial stability, including through bank capital requirements and stress-tests linked to the ability to distribute dividends.
While progress on the financial front will be slow—given the complexity of the issues and the powerful lobbies around them—, we should still expect it to be unwavering. Even modest steps adopted in the short-term are likely to carry significant regulatory compliance burdens, as the reach of US banks—directly and indirectly—is far and wide.
Much has been written and much is expected in this area. The Biden team has made clear that it intends to resume US global leadership in the fight against climate change. This has already involved a formal notification reversing the Trump administration’s decision to leave the Paris Agreement and will also likely entail urging more ambitious global targets and stepping up actions to reduce US emissions of carbon dioxide. The appointment of a high-powered team in charge of climate action should also be taken as a clear indication of the new administration’s determination.
Even just meeting the Paris Agreement greenhouse-gas emissions targets will soon have implications as it will require introducing domestic measures to encourage US industries to reduce their carbon footprints. This will have to be balanced with measures to ensure that US carbon-mitigation policies do not put domestic industries at a competitive disadvantage compared to imports from countries with relatively lax environmental rules and practices.
Regulatory implications will come in two waves—early as the US gears up to meet internationally agreed-on commitments and subsequently (though subject to more bipartisan progress than is currently the case) as the need for more ambitious measures becomes pressing and the policy options sharpen.
There are many cross-cutting implications for actions primarily focused on one area. A few examples serve to illustrate this.
- Trade and finance. The use of tools other than trade policy to strengthen US leadership in strategic sectors is under serious consideration. This could include the use of financial incentives and tax code changes to discourage offshoring and to bolster production within the US or closer to its borders.
- Trade and environment. This could involve imposing an import charge on goods whose carbon footprints substantially exceed that of comparable US-made goods—similarly to what is being considered, for instance, in the EU.
- Finance and environment. Climate-change risk management rules are likely to shift, reflecting growing awareness and research on the threat extreme weather poses to the economy. Treasury Secretary Yellen has already indicated that she takes this seriously, similarly to positions taken by the Bank of England, and a major change in concert with financial regulators in other countries should be expected in how financial regulators will be thinking about climate-related risk and capital requirements.
Stock market perspective
Finally, a more empirical perspective is worth considering: that of the stock market. The behaviour of stock exchanges in the United States offers an interesting reading that has both pragmatic and synthetic value and generally validates a number of the expectations noted above. It is worth making a parenthesis to remember that, when considering the movements of U.S. stock exchanges, we are dealing with something that has many more global implications than it seems: the market value of U.S.-listed companies is nearly half the market value of all listed companies worldwide.
In the first week of November, when it became clear that Biden had won the presidential election and it seemed that the Senate would remain under the control of the Republican Party, the widest stock market rate (S&P 500) rose by more than 6%.
The interpretation then was that a more coherent and professional administration than Trump's (something easy to achieve) would be good for the business world. But, also (and equally important to stock markets), there was a sense that by keeping Republicans in control of the Senate, there would be considerable resistance to introduce progressive fiscal policies and stricter regulations on economic activity.
A more lasting and likely reason why the market has remained calm despite concerns regarding the possibility of significant changes to fiscal policy is the razor-thin margin in the Senate
The behaviour of U.S. stock market indexes on January 6 is fascinating from the same perspective—not just because how calm they remained on that tumultuous day at the Capitol in Washington but also because it then became clear that Democrats had won both elections in Georgia. Further increases through January 22nd have left the S&P 500—with subsequent fluctuations reflecting mainly pandemic news—14% higher than it was on the day of the presidential election. With control of the Senate now in Democrats’ hands, stock markets could be expected to express greater concern.
The prospect of a major stimulus bill has undoubtedly played a role, but there is a more lasting and likely reason why the market has remained calm despite concerns regarding the possibility of significant changes to taxes and fiscal policy more generally. It is the political calculus of a razor-thin margin in the Senate and a narrower margin in the House than previously existed. This means that it will be difficult to pass major legislation and that any compromises could be challenged by a small number of independently-minded votes, especially in the Senate. The bottom line, from a stock market perspective, is that the Biden administration will a be positive but moderate steward of economic policy.
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