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Market update - An “America First” inaugural speech

Author: George Lagarias, Chief Economist, Mazars

Published: 21 Jan 2021

Inaugural speeches are important. They often set the standard upon which those who govern expect to be judged. George Lagarias, Chief Economist at Mazars, assesses President Joe Biden's speech and what we can expect from a market perspective.

As one of history’s most unconventional US presidencies ends, it finds the unchallenged global superpower withdrawn from its global leadership perch, cleaning the wreckage at Capitol Hill and dealing with a raging pandemic with over 400,000 dead (1/5 globally), a deficit of at least 15% and very high debt. Worst, the world’s de facto leading nation and oldest modern Democracy is so deeply mistrustful of its own system that still more than half of Republican voters believe the election was tainted.

Mr. Biden’s inaugural speech was a succinct reflection of current circumstances. It was not an “Ask not what your country can do for you” (Kennedy) moment, or even an “we have nothing to fear, but fear itself” (F. D. Roosevelt) one. It was not a bold vision to do things differently, like Reagan’s “Government is not the solution. Government is the problem” speech in 1981.

It was a call for unity and healing. “With malice toward none, with charity for all”, Abraham Lincoln said in his second inaugural address, and that was the spirit of yesterday’s speech. Less eloquent than “Honest Abe” (who was quite maliciously shot 41 days after delivering this particular speech), but reflecting similar circumstance.

It was not only Democrats or Republicans who were listening though. It was the world. And there are three solid takeaways from this first address of the 46th US president.

  • America will focus on self-healing: America will once again embark into a soul-searching journey. This makes sense. It can’t reclaim its place at the helm of the western world if the fire at home is still burning. So, despite a first executive action to rejoin the Paris accord, Mr. Biden’s priorities will probably be domestic: the economy, where $1.9t stimulus is expected, the virus and a vaguely defined national healing.
  • A war on lies - and possibly social media: Mr. Biden clearly pledged to “defend the truth and defeat the lies”. Beyond his personal woes during the campaign (fact-checking his predecessor can be a daunting task), there’s bipartisan support to somehow regulate the tech industry, or at the very least try to stave off social-media fuelled polarisation.
  • Foreign policy will have to wait: “So here's my message to those beyond our borders. America has been tested and we've come out stronger for it. We will repair our alliances, and engage  with the world once again. Not to meet yesterday's challenges but today's and tomorrow's challenges. And we'll lead not merely by the example of our power but the power of our example.” Out  2400 words of the inaugural address, 59 were devoted to the rest of the world.

It makes sense for America to put self-healing first. A nation can’t hope to lead effectively without a modicum of peace at home.

However, if they will indeed have to wait for America to heal, it could be a long time before a US President meaningfully and sustainably reengages with Europe, China, Russia or the UK again. The fires burning in the American South and Midwest were not lit by populism, merely fanned by it. Confederate flags and racial issues have defined and divided America for the last 170 years and will probably continue to do so for as long as any human being asserts inherent genetic or cultural superiority over another. Urban and rural communities will continue to see things differently, not just as a result of income imbalances, but because of the fundamentally different mindset developed between homogeneous small communities and multi-cultural large ones. Higher incomes will always be at odds with lower incomes, a situation exacerbated as income inequality becomes more pronounced (only the top 20% of income earners have benefited whatsoever from the Fed’s monetary expansionist policies in the last 12 years). None of this will get resolved any time soon. The question is, can tensions quietly re-submerge again so that the US government can get on with the business of global leadership? Will simply muzzling certain social media accounts be enough for such a task?

Meanwhile, as the world waits for America to reassert itself, it does plan to go on developing. The UK will have to reinvent itself and its place amongst the G7 developed economies, and be quick about it. Europe will engage with China, following the signing of a trade deal. Global consumption will continue to gravitate away from the American consumer and towards Asia, which is expected to account for ¾ of global purchases in the next twenty years. Debt will eventually take centre stage in a global discussion. China might not become a global empire -it has certainly not indicated that it wishes to- but it will persist in its quest to dominate Asia, by educating more of its citizens and staying at the forefront of scientific recovery, all the while fuelled by the Confucian principles of its society. And Europe will soon have to deal with its own demons, namely the malformed currency at the epicentre of its existence, even as it tries to wrestle some clout away from the US.

Yesterday’s speech puts America as a first priority for the newly elected President Biden. The US is in "repair" mode, and rightly so.

But we should note it as further evidence that the post-war order, shaped by heart-breaking global conflict and “cold” wars, is steadily being consigned to history, and it’s difficult to see what can bring it back.

*The views expressed are the author’s and not ICAEW