A new orthodoxy may emerge in the US

America goes to the polls to elect its next president on 3 November. Although the vote is likely to be tighter than polling suggests, a Biden win looks likely.

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  1. Charles Stanley

On 3 November, the US goes to the polls to choose a new President and Congress. It is a gripping battle, as the Democrats – representing the international order and the Green consensus – set out to wrestle power back from a maverick leader.

Donald Trump took the Republican Party by storm in 2016 – and surprised many by defeating the quintessential Establishment candidate, Hillary Clinton. She had been First Lady, Secretary of State and a Senator – but was rejected in favour of a businessman and TV host who wanted to challenge conventional wisdom on military intervention, economic orthodoxy, energy policy and international diplomacy.

His views global views were more strategic and integrated than his critics thought. He wanted a fast expansion of US oil and gas to beyond the level of self-sufficiency, a retreat from military intervention in the oil lands of the Middle East, and a Middle Eastern peace initiative built around the US leading allies of Israel and Saudi Arabia. He was, above all, a President fixated by domestic issues and determined not to be side-tracked by foreign wars and international conferences. He wanted faster growth from tax cuts, stimulus measures and onshoring of industry based on cheap energy.

Legal drama adds to tensions

As the world watches the election, the politicians in the US Senate are more preoccupied with the appointment of a new Supreme Court judge. Amy Barrett, a relatively young mother, has impeccable legal and academic credentials. If confirmed, she will be the first mother of school-age children to serve on the Supreme Court.

Instead of finding this a surprising and suitably diversifying proposal, the Democrats are angry because she is a Catholic, with personal and private attitudes towards issues such as abortion that they condemn. Both sides are also well aware that if there is a contested result of the Presidential election, as Mr Trump has sometimes indicated there could be, the Supreme Court will have an important role in settling the ballot issues. Another Republican-leaning judge in the post before 3 November is, therefore, a bad idea for the Democrats.

Current polling indicates a convincing victory for Joe Biden, with a closer race as the Republicans seek to hang on to the Senate. Pro-Trump forces point out that the polls in the crucial swing states are much narrower than implied in the national polls. They also claim that the pollsters do not capture all the Trump voters – and fail to adjust enough for shy Trump voters who do not want anyone, including a pollster, to know they will vote for the incumbent.

There is more energy and support for the Trump campaign in the flesh and on the ground, whilst Democrats are more preoccupied with sheltering from the virus. There is also a lack of passion about their candidate, though plenty of animus against the Republican. Mr Biden runs a sanitised campaign with small and controlled meetings and little media access to ask him questions.

Disputed result a major concern

Market surveys point to investors being more nervous about the possibility of a disputed result than any other outcome. Were Mr Trump to pull off a surprise win, as his hidden and past supporters turn up on the day after all, there would not be much change. He is likely to continue driving for a faster economic recovery, urging the Fed to more monetary innovation and eventually reaching some agreement with the Democrats in the House of Representatives about further fiscal stimulus.

If Mr Biden wins, as currently forecast by polls and commentators, there will be big changes of style and approach. He will wish to seek a more collaborative relationship with the UN, EU, World Health Organisation, IMF and other bodies Mr Trump has found unhelpful. He will take the virus more seriously and favour stricter lockdowns and protective measures to control its passage. He will tilt Middle Eastern policy back to doing deals with Iran at some cost to his relationship with Saudi, may favour more military and diplomatic activity under pressure from the Pentagon and other agencies – and will wish to adopt a leading role in the Green revolution. He is likely to continue the cool relations with China and remain suspicious of their military and cyber build-up.

Only if the Democrats take the Senate as well will we see the full Biden agenda, with large tax rises, more regulation of large companies, stronger actions to wind down oil, gas and coal, and more extensive health and public service reform, with a bigger role for the trade unions. This would seem to be more likely to damage share values than the contested election scenario. Some hope there would be a very large fiscal stimulus to offset these other measures.

It is difficult to see that Mr Trump could sustain a successful challenge to an election he had lost by anything other than a tiny margin, with considerable pressure of public and press opinion against attempts to claim large numbers of rigged postal votes. He will need good evidence and a credibly small gap to make it a realistic chance of overturning a declared result. People do not like bad losers.

Markets have been buoyed again by investors committing cash, the Fed keeping rates low and talk of fiscal stimulus boosting optimism. The election is not helpful for the market outlook, and there remains a winter ahead when the US, like Europe, will still see plenty of economic damage from the persistent Covid-19 virus.

Markets hope for a vaccine which works by February. That is possible, with plenty of candidates in clinical trial. It will still be a small miracle, given the difficulty of finding effective vaccines against flu, - and the problems in finding enough production capacity to vaccinate a world desperate to move on from Covid-19. If there is a credible vaccine, the sectors badly damaged by the pandemic will rally. Without it, we will continue to live in an online world, where sectors and companies harnessing digital operations will outperform.

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