Over the weekend, it became clear that Joe Biden will win the US election.
We’re not a political newsletter (thank God).
However, we want to look at what the results mean for the economy and us as people living abroad.
After all, successful investors focus on trends and not events.
Understanding broad policy shifts let us see where the global economy could be heading, giving us peace of mind and helping to make sense of our nonsensical world.
A return to cooperation?
Following Tuesday’s vote, the Democrats won the White House and maintained their majority in the lower House of Representatives.
Meanwhile, the Republicans were able to hold onto their control of the Senate.
Barring a major upset, they will keep that lead after Georgia’s special runoff vote in January.
Additionally, the Republicans confirmed their third Supreme Court Justice, giving them a nominal edge in the judiciary.
It’s tempting to look at this situation and say, “yo, won’t this lead to even more gridlock?”
Maybe, but probably not. Here’s why:
Over the past decade, the US population began shifting.
Many people leaving the ‘liberal’ coasts for cheaper and sunnier states in the south (what Americans call the “sunbelt”).
The impact of these transplants was already apparent on Tuesday.
Former Republican strongholds like Texas and North Carolina were surprisingly competitive, with Arizona and Georgia flipping to the Democrats.
If that wasn’t enough, the voters rejected the leftwing progressives as well, with Biden and moderate republicans doing well down-ballot.
The message for both parties from voters is clear: if you want to stay in power, you need to go back to the center.
The markets are already reacting positively to the potential of a centrist government, believing that in the next two years:
- Taxes probably won’t increase
- There will be spending but not to an excessive level and with oversight
- Biden is predictable and will avoid Trump-style vendettas that add risk and volatility to doing business
- The potential for a government shutdown decreases
- There will be the political capital to fix universal problems through political compromise
Certainly, there’s no guarantee that this scenario will happen, but the political calculus makes it possible.
A reentry to multilateralism
For better or for worse, the US and the rest of the world need each other.
While this relationship needs a deep overhaul, the impact of an absence in US leadership on the global became apparent over the past four years.
Biden will return to a more multilateral approach to global issues, including:
- Re-entering the Paris Climate Agreement
- Ascending to pre-negotiated trade agreements such as TPP and TTIP
Both of these international vehicles will spur trillions of dollars in investments.
Simultaneously, they’ll help reimagine globalization more sustainably, giving investors what they want.
A different approach to handling the pandemic and the subsequent economic recovery
As we wrote last week, controlling the pandemic is Biden’s top priority.
It’s hard to say what will entail.
US law doesn’t provide a clear path for the suspension of rights for a lockdown or a national mask mandate that Europeans did with varying success.
Furthermore, Biden only enters office in late January, and by then, a vaccine might be ready to go.
We do know that Biden promised to rebuild the economy and build it back better.
How he does it will likely involve a mix of fiscal stimulus (i.e., the government spending money on people and companies) and structural reform to help income inequality worsen.
What remains to be seen is how that will play out with the Republicans, especially if they keep the Senate.
Whatever happens, though, there will be a reset on the current policy, which can reinvigorate the economy.
How Biden’s Election impacts the economy for people living abroad
There are some points of the Biden plan for people living abroad that we need to be aware of.
Multilateral trade is likely coming back
This point means that there will be more international commerce and trade. As people living abroad, we’re naturals at spotting cultural differences and matching opportunities.
Throw in the ability to work remotely across the globe, and we’re well-positioned to benefit.
Will remote working “go global?”
Of all of the fads and predictions coming out of the pandemic, remote working is likely here to stay.
Yet, despite the eagerness to work/hire from anywhere, the current tax system isn’t quite set up for it.
Already around the US and Europe, ‘newly remoted’ workers are unexpectedly discovering that next year’s taxes are going to suck.
Tax residency definitions based on physical presence or other tests mean that remote workers might get paid from one state or country but are tax residents elsewhere.
The unintended consequences can be severe, ranging from higher tax bills to an accidental ejection from national social security programs.
Of course, people already working remotely before the pandemic knew these problems all too well.
For them, working remotely from abroad means becoming a freelancer or a one-person company.
The “fun” part here is that you get to administer a company on top of doing your actual work.
The tax headache you’re feeling is real.
Now though, will the Biden administration push to change these rules to make working remotely easier?
And if so, will these rules extend internationally?
If they do, there will be a new world of job opportunities for remote workers living abroad.
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The UK will formally leave the EU at the end of the year.
As part of the “F- everything about 2020, we’re doing it the hard way” mantra of this year, we’re six weeks away from the new year, and no agreement is in place.
UK Prime Minister Boris Johnson was counting on a strong bilateral agreement with the United States to cushion the economic blow in case of a hard Brexit (i.e., no deals in place to keep business running as mostly usual).
Donald Trump was a huge proponent of Brexit and promised Westminster a comprehensive trade agreement.
However, Biden, like Obama, prioritizes deals with the much larger European Union over the UK.
Will the fact that Johnson just lost his Brexit insurance policy bring him back to the table with the EU?
If that happens, we can expect a friendlier Brexit between London and Brussels.
For Brits living abroad and foreigners in the UK, a softer Brexit means the ability to live and work across most of Europe, bringing jobs and eliminating headaches for expats and remote workers.
Generally, central banks have the biggest impact on exchange rates. However, if Biden were to start a massive spending program, that would also impact the dollar.
Right now, it’s too soon to say. There’s still a lot of volatility right now.
Like we always recommend, never try to beat the FX markets unless you’re okay with losing money.
That’s it for us this week! Thanks for reading and, barring some shock, we’re moving on from the US for a while. Have a good one!