UK businesses should note ‘six-point policy agenda’ from Biden administration says RSM
As president Donald Trump continues to show signs of submitting to the election result this past week, RSM has made the case that president-elect Joe Biden will pursue a policy agenda centred around six key themes that UK middle-market businesses, particularly those with existing or future interests in the US, should consider now.
Simon Hart, lead international partner for RSM UK comments: ‘It’s very early days in the transition of power between Administrations so we watch with interest for initial announcements and the likely direct and indirect impact for UK businesses. There are however areas we know will move into view over the coming weeks as clear long-term priorities.’
Here’s our view, in consultation with our colleagues in the US:
- Science. The pandemic and health care will be the administration’s first priority. From what we can see, Biden’s team believes its political fortunes revolve around getting the disease under control and managing the production and distribution of the vaccine across the US. This will be critical for the US economy to rebound in 2021. For the UK, the recent Oxford University-AstraZeneca announcement and the Pfizer /BioNTech MHRA approval gives an encouraging chink of light to kick-starting the UK economic recovery.
- The economy. The US economy needs another round of fiscal aid and we expect something above $1tr to be approved in the new year.
- Trade. The incoming administration has signalled that it intends to mend fences with the major trade partners of the US, although maybe not China just yet. This suggests there will be a policy imperative to get commerce moving across North America, which should reinvigorate manufacturing in the western hemisphere, while simultaneously jump-starting trade with the UK, the EU, Japan and South Korea. The UK’s ongoing negotiations with the US over a future free trade agreement (FTA) will continue, albeit at a slightly slower pace to take account of the wider ‘fence-mending’ that the administration will want to address. But any view that the UK/US FTA will be compromised or even derailed is, in our view, wide of the mark.
In terms of China, we do not expect tensions with the US to abate anytime soon. But there is space to quietly begin talks on agricultural exports. For this reason, we expect the protracted trade conflict that characterised 2018-20 to be quietly draw to a close next year. It is natural and legitimate that the trade channel be a component of the recovery that we anticipate to expand in 2021 and 2022.
- Infrastructure. We expect a major policy initiative out of the administration early in 2021 to create an infrastructure bank to support a major upgrade to what many view as a crumbling infrastructure in the US. The focus will revolve around the rebuilding of roads, bridges, transit, ports and waterways; the expansion of digital broadband and 5G; and the integration into all of the above smart and renewable resource use.
- Employment. While the US economy will return to realising its potential output over the next 12 to 24 months, it may be some time before its economy moves back to full employment, which is closer to a 3.5% unemployment rate than the current 6.9. We expect that the gain in monthly payrolls will average roughly 320,000 per month in 2021. From our vantage point, the risk to the forecast is clearly toward a faster pace of payroll growth and a lower year-end target on the unemployment rate than our current 5.5%.
Inflation. The disinflation caused by the once-in-a-century economic shock has not yet completely worked its way through the US economy. While it is almost certain that its economy has entered recovery, the gap between actual and potential output implies that its economy is only two-thirds back to where it was at the beginning of 2020 – and where it was at the bottom of the financial crisis. And that strongly suggests that there is not much inflation risk. While the Consumer Price Index will certainly jump to near 2.5% in mid-2021, that will be nothing more than a transitory deviation in pricing, and the yearly average in inflation will remain below 2%.