Focus on COVID-19 — the right way forward

It has been clear since Saturday night that Joe Biden won the US presidency. Markets have rallied ever since the election. Last week the S&P 500 had its strongest week since April, rising 1.5 percent, and the Nasdaq 100 even added 2 percentage points. Analysts coined this rally the “Biden bump.”

The exuberance continued into Monday with Asian and European markets opening higher. The euro rose and the dollar lost, oil rallied reaching $38 per barrel for West Texas Intermediate (WTI) and $40.26 per barrel for Brent by midday Monday central European time (CET). This indicated a risk on sentiment, which was somewhat mitigated by a rising gold price.

Markets generally get the drift of what is to follow, so what did they see?

Biden made it clear that his first priority would be to put together a coronavirus disease (COVID-19) task force, which is very important. Global COVID-19 cases have passed the 50 million mark and in the US the count is more than 10 million with the number of daily new cases above 100,000 for the fourth time in a row.

On the other side of the Atlantic the virus is out of control and the harsh restrictions and lockdowns will cost European economies dearly.

In an interview with Bloomberg on Saturday, economist Mohammed El-Erian intelligently laid out the conundrum Biden faces: The president-elect has to walk the narrow line between ensuring public health, enabling a degree of normalcy in economic and social interactions, and guaranteeing personal freedom.

This would be no mean feat in the best of circumstances. Biden may also face a messy transition period, which will not make the above any easier.

Biden has been there before. When former American President Barack Obama assumed office in 2009, the world found itself at the height of the financial crisis. However, the outgoing Bush administration worked very closely with Obama’s transition team which made the transfer of power smooth and economic policies consistent.

Similar cooperation is unlikely to be on the cards this time. However, Biden is correct in putting full emphasis on combating the virus. Without coming to terms with life under COVID-19, there can be no economic recovery.

Europe is a point in case, as is Asia. The East Asian nations are doing better than the rest of the world because they had found ways of running their economies despite the COVID-19 outbreak. China got there with authoritarian means and Taiwan, South Korea, and Japan achieved it via social responsibility of their populations, which by virtue of their underlying Confucian values are naturally geared toward social responsibility.

Biden’s path is the right way forward, especially because even if vaccines and antiviral drugs get approved soon, it will take between six and 18 months to produce the medications at scale and roll out broad national and international availability and programs.

Donald Trump’s administration put its focus on the economy. Biden is correct in his presumption that without understanding how to live with the virus, there can be no sustainable economic recovery, which brings us back to El-Erian’s wise words.

Biden faces more challenges. He may well have to work with a divided Congress, where the Senate may remain under Republican control, which is a mixed blessing.

On the one hand, it will curb the influence of the left of the Democratic Party, leaving tax hikes at moderate levels. It is a home truth that during a recession increasing taxes may not be the right measure to promote economic growth.

On the other hand, President of the US Federal Reserve Jerome Powell was right when he pointed out last week that the central bank should not be the sole institution tasked with stimulating the economy and that America now needed substantive fiscal stimulus. 

This will be difficult under a split Congress. A split government usually stands for prudence and the status quo, which works well in normal times. A crisis often necessitates swift and urgent actions, which is not helped by a split government.

When it comes to trade policy, we will see more consistency and a more diplomatic tone. However, especially when it comes to China, the last four years have left realities on the ground and Biden has made clear that some of Trump’s concerns in limiting China’s access to the US market and its trade deficit will remain.

China’s 14th Five-Year Plan’s focus on technological independence, particularly in information technology, artificial intelligence, and robotics indicates that Beijing has heard this message loud and clear.

All in all, Biden has cut his work out for himself. The economy needs to recover, unemployment is high, and the K-shaped recovery exacerbates inequalities both between households and in the corporate sector, where concentration in big companies has accelerated during the pandemic, which is not good for competition. On top of that, the deceleration of globalization diminishes productivity.

In the meantime, putting first things first is always a good way forward. Under current circumstances dealing with the virus clearly has to take priority.

• Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources