With Joe Biden announced as the winner of one of the most contentious presidential elections in recent memory over the weekend there are a number of issues that the president-elect will have to deal with upon taking office.
Ed Smith, Rathbone’s head of asset allocation research, said there are several key issues that need to be resolved. Issues, he said, that have not been fully realised by the market.
The first is drug pricing, which Smith said will be of particular note to Biden given he served as vice president under Barack Obama, helping to form the Affordable Care Act, more commonly known as Obamacare.
Even before it came into effect the policy was highly debated, but Biden has stated his commitment to the Affordable Care Act if elected.
Biden’s other drug pricing issue could also be significant for markets.
The president-elect wants to allow Medicare to negotiate on drug pricing and given that Medicare represents 45 per cent of big pharma sales, with Smith noting “that’s going to have a big impact”.
However, outgoing president Donald Trump also expressed similar ideas to his Democrat rival, Smith pointed out, with the latest executive order on drug pricing aimed at lowering drug prices in the US by linking them to those of other nations and expanding its mandate to also cover prescription drugs.
Titled ‘executive order lowering drug prices by putting America first' the idea was that the US would pay a price for a drug which matches the lowest paid price amongst foreign governments. Medicare is currently barred from negotiating drug prices with manufacturers.
“These executive orders had a lot of similarities with Biden’s policies,” Smith said. “He wants to introduce an international pricing index and penalties if the drugs exceed how they’re being priced elsewhere in the world.”
Healthcare has been a major theme in markets this year as the Covid-19 pandemic has raged on and has been one of the best-performing industries year-to-date.
Performance of indices YTD
Source: FE Analytics
“We are living through a golden age of medical innovation and that’s been behind a big increase in stock prices in the sector,” Smith said.
He added that while these drug-pricing policies are highly debated in the US, they’re unlikely to hurt them, as no president wants to impose penalties on innovative companies.
The second partisan issue investors need to be aware of is infrastructure spending.
“That’s been one of those issues that every president and candidate has said that they’re going to do something about and it’s never been done,” said Smith.
Trump’s plans for infrastructure spending were side-lined when he “threw his toys out of the pram”, during his impeachment trial last year, according to Smith.
President-elect Biden spoke about supporting green infrastructure throughout his campaign, focusing on targeting sustainable and climate change issues, promising to re-commit the US to the Paris Climate Agreement and support a $2trn ‘Green New Deal’.
But this looks difficult to achieve given the ‘Blue Wave’ of support for the Democrats many commentators had anticipated did not materialise. Without a strong majority in the House of Representatives it would be a struggle for Biden to pass major spending on green policies and infrastructures.
The final issue is trade and foreign policies concerning China.
The US-China trade war has been an ongoing theme in US markets since 2018 as president Trump accused China of being unfair with how it trades with the US.
Applying tariffs and other trade barriers to China’s imports things quickly escalated into a burgeoning trade war. This was a major concern markets creating uncertainty and concern over how tariffs would impact them.
Relations worsened even further this year after a reassuring ‘phase one’ deal was dismissed when Trump publicly blamed China for the outbreak of Covid-19 and consequential economic crisis.
Regardless any future US president is now expected to take a strong stance against China if they’re to retain the favour of US voters, Smith said.
Recent research carried out by the Harvard CAPS/Harris Poll – an online monthly poll of 2,000 US voters carried out by Harvard’s Centre for American Political Studies and Harris Insights and Analytics – found that US voters want the president to implement even tougher polices against China.
Biden has taken a strong, anti-China stance in his campaign, but this hasn’t been fully realised, Smith said.
“We’ve seen US companies with high sales into China their stocks prices correlate with Biden’s polling numbers this year,” he said. “We think that that’s somewhat of a mistake. Biden is the culmination of many years of the Democratic party becoming a little more circumspect on free trade and are particularly anti-China.
“Being anti-China is a bi-partisan issue and plays incredibly well with the American voters, regardless of their stripes.”
In his economic plan, Biden made plans for ‘Made in America’ tax credits and introduced tax penalties for offshoring.
“These were policies which Trump had spoken about off the cuff before but has never actually implemented them and Biden was incorporating them into his official plan to the point where the Republican national committee had to scramble to incorporate them into their official policies,” Smith explained.
“So, Biden – in some ways – is just as tough on China and just as anti-offshoring China as Trump he’s just not more likely to carry through with that sentiment in a more rules-based, internationalist way rather than the unilateral, maverick approach of Trump,” Smith said.