MACRO UPDATE: BIDEN, US-EU TRADE, MICKEY LEVY CALL, PANDEMIC

US ELECTIONS

Joe Biden has won the presidency according to major US media. Whether the Republicans will defend their majority in the Senate depends on the outcome of two run-off votes in Georgia on 5 January. In the possible but somewhat unlikely case that the Democrats can add both of Georgia’s Senate seats to their current tally of 48 seats, the tie-breaking vote of Vice President-elect Kamala Harris would afford them a narrow majority. Electionbettingodds.com put the probability for this at c24%.

In his victory speech on Saturday, Biden struck a conciliatory tone. Addressing the deep rifts in US society will be one of his major challenges. Some narrowing of income inequality at the bottom end of the family income scale and the modest recovery in the share of labour in national incomes, which started some five years ago and may continue once labour shortages re-emerge after the pandemic, may help – see Chart of the Week – a glimmer of hope: labour share in income edging up.

For the economic and financial implications of the US election result, see Mickey Levy’s interim assessment. For the potential impact on Europe, see What if: European views on Biden.

Mickey Levy will present his “Interim assessment of the US elections: Policy outcomes” in a Zoom conference call for clients today, Monday, 9 November, at 15h GMT. Please contact your Berenberg sales representative to register.

US-EU TRADE

Various media report that the EU will impose retaliatory tariffs on $4bn of imports from the US shortly. The World Trade Organisation (WTO) has judged that both the US and the EU have breached the rules by unfairly subsidising their respective aircraft makers, Boeing and Airbus. Having allowed the US to levy tariffs on $7.5bn of US imports from the EU in 2019 already, the WTO authorised the EU to also impose tariffs on$4bn of imports from the US a few weeks ago. After holding back before the US elections, the EU will now likely go ahead.

The dispute may make headlines. However, it differs very much from Donald Trump’s trade war against China in 2019 and his concurrent threats against the EU. The Airbus/Boeing issuedates back to 2004. Both sides pursue their dispute through the established channels of the multilateral WTO. This is part of the game rather than a risk to the rules of global trade. It should not have serious repercussions beyond the products directly concerned. We would not be surprised if the US and the EU defuse or even settle this dispute shortly after the Biden administration takes office on 20 January 2021.

PANDEMIC: VERY MIXED NEWS

As the days get colder and darker in the Northern hemisphere, the number of recorded Sars-CoV-2 infections continues to soar to new records in major parts of Europe, including, France, Italy, Germany and Poland, as well as in the US. With a lag, the number of people with Covid-19 who have to be treated in hospital or even intensive care units and the number of deaths linked to Covid-19 is also rising significantly in Europe. Strains are emerging, or look set to emerge shortly, in the health systems of many European countries. The pandemic remains the top near-term risk to our economic outlook.

However, the news is not all bad. In some of the most-heavily affected countries in Europe, infection rates are coming down in response to measures taken a few weeks ago. The change is clearly visible in Belgium, where the rate of recorded infections had been much higher than anywhere else in the Eurozone. The Netherlands and – more tentatively – Spain and the UK may also be turning the corner, see Chart. This supports the hope that infection rates may also stabilise within weeks in other countries such as France that tightened restrictions significantly roughly ten days ago. Whether or not the current set of restrictions will be enough to contain the spread of the virus sufficiently to prevent excessive strains on medical systems throughout the cold season remains to be seen. We base our near-term economic forecasts for Europe on the assumption that the restrictions can be eased again somewhat in time for the Christmas season.

In the US, Biden is appointing a task force to develop a science-based plan to contain the pandemic, to be implemented upon taking office on 20 January 2021.

We will take a closer look at the issue in our weekly update and chartpack on virus trends in Europe on Wednesday.

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