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The US has voted for a new president, but the biggest global impact will depend on how much fiscal stimulus Joe Biden can get through the Senate. Making the pandemic his priority will push foreign policy down his agenda but also probably also take precedence over promised domestic tax reform and higher infrastructure spending, both of which will be very hard to deliver with a Republican Senate.

The initial fiscal support will be of the type held up in Congress before November’s election: direct payments to households, federal unemployment benefits, support for small businesses plus state and local governments.

Proposals from Mr Biden’s Democratic party ranged from USD2.2 to USD3 trillion – equivalent to 11 per cent to 15 per cent of annual GDP – but without control of the Senate, any stimulus will likely be closer to the USD500 billion to USD1 trillion proposed by the Republicans.

This injection of funds into the economy is very unlikely to lift import demand and the world trade cycle as much as resource-intensive infrastructure spending would.

The ambitious Biden plan for clean energy – involving USD2 trillion backing over four years and investment in infrastructure, electric vehicles, city transport and targeting a carbon pollution-free power sector by 2035 plus energy-efficient buildings – may never happen without a Senate majority.

A rise in Federal Reserve interest rates remains very unlikely over the next two years, given the limited likely scale of fiscal stimulus. But monetary conditions in other countries could be affected if a stronger US recovery, perhaps aided by an effective vaccine, allows the Fed to scale back its asset purchases – currently USD120 billion a month – or raise them if renewed lockdowns and/or a failure to deliver any fiscal support sets back the recovery.

Even without Senate control, much can be done by executive order. Mr Biden has stated his wish to unwind much of his predecessor’s presidency relating to overseas countries.

He has pledged to re-join the World Health Organization and boost its pandemic funding, for instance, and to re-join the Paris climate agreement – even if he cannot get Senate approval for spending at least USD1.7 trillion over 10 years on clean-energy technologies.

Any easing of immigration restrictions will be limited by the Senate but, by allowing in more skilled workers could raise US productivity and also support the workers’ home countries. About 3 per cent of GDP in Mexico and the Philippines is remittances from the US.

But while the Biden presidency could help Mexico and other emerging countries with high trade exposures if fiscal stimulus and less protectionist policies improve export prospects, we expect no quick U-turn on trade with mainland China. Indeed, we do not expect US trade policy to change substantially over the next four years.

Mr Biden’s Made in America and Build Back Better plans suggest he wants to reduce dependence on foreign suppliers. He is likely to continue the tough stance on longstanding US trade grievances and maintain some protectionist measures.

On a more positive note, Mr Biden won’t unilaterally impose new tariffs and he will likely seek to align with traditional trading partners, including Europe. However, frictions between the US and Europe, including the UK, will likely continue – for instance, over digital services taxes. We expect new trade deals – including a EU-US Transatlantic Trade & Investment Partnership – to take a backseat to domestic priorities in the coming year or two.

First published 7 November 2020.

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