President Biden's first 100 days in office have been focused on continuing the US's response to COVID-19 with a US$1.9 trillion COVID-19 stimulus package and swift vaccination programs. We have also seen significant developments on the international stage, with Biden progressing or reinvigorating relationships with key allies and pursuing new trade relationships. So, what does all this mean for Australian companies and investors, and for US companies doing business in Australia? We take a look.
Since the US presidential election in November, the Australian Securities Exchange's ASX 200 index has been increasing constantly. In fact, it was 5,951 points on 2 November 2020 and closed at 7,025 points on 30 April 2021 at the end of President Biden's first 100 days. This represents an exceptional growth of 18%. Part of this growth can be attributed to the Biden Administration’s infrastructure plans and commitment to invest US$1.9 trillion to support American jobs.
The US S&P 500 index also increased from 3,310 points on 2 November 2020 to 4,211 points on 30 April. Just one day before (on 29 April) the S&P 500 closed at its highest point in the history so far, which means Australian companies listed in the US, as well as Australian investors, have made significant gains since Biden became president.
One point of progress was the virtual Quad meeting between its member countries – the US, Australia, India and Japan. With positive collaboration, the partnership is likely to 'anchor stability' and improve trade.
How have Biden's changes affected the Australia-US and US-Australia supply chain?
President Biden is in the process of signing an executive order to strengthen a tech supply chain with its key allies, including Australia. This may boost the trade of chip, battery and rare-earth minerals.
The US is in the process of strengthening its supply chain in the Asia-Pacific region, particularly through the Quad. The Quad partnership will specifically focus on mining and supply of rare-earth minerals to increase diversity of supply and reduce market dominance in smartphone and electric vehicle battery market.
How Biden’s actions affect private investment from the US to Australia (and Australia to the US)
President Biden is currently pursuing his campaign promise of seeking to increase taxation on US corporations. If successful, the current tax rate could be increased from 21% to as high as 28%. Such an increase could result in US companies seeking to move their headquarters to a more tax-friendly jurisdiction.
From Australia’s perspective, an increase in the corporate tax rate in the US may attract greater US investment in Australia. Australia may also reduce its corporate tax rate to 25% in FY2021-22, which, together with changes to US corporate tax rates, could directly boost investment in the nation.
Changes to the corporate tax rate in the US could also prove a deterrent to individual and corporate investors who historically have relocated their investments from a country with high tax rates. For Australians with investments in the US, the changes implemented by Biden’s Administration could mean higher estate taxes, capital gains taxes, corporate taxes and income taxes.
What does the US's new China trade policy mean for Australia?
The US and China have signed the Phase One Trade Agreement, which resulted in an end to the trade war between the two countries. While China has not met the targets set out in the agreement, the flow of trade between the two nations is unlikely to see any major change in the short term.
The Biden Administration is currently considering signing an executive order on a US-allies supply chain, which sets up a strategy to boost the supply of medical equipment, among other items to the US.
President Biden has specifically mentioned the medical field as key to future success, together with revitalising its collaboration with Australia.
He has also announced a crackdown on tax loopholes that allow technology and pharmaceutical companies to minimise their US tax liabilities by claiming overseas expenditure on intellectual property and patents. This would result in higher taxes in the US and a complete shift of operations within other nations.
Tech and biotech
The mining of rare-earth minerals is also being overseen by the Quad. This is likely to boost the telecommunication sector and green technology in Australia.
The Biden Administration has also announced plans to bring down overpriced internet bills, a move which may result in a clash with the tech and telecommunications sector. Telco providers had previously resisted intrusion into their pricing policies, and government intervention may adversely affect the industry in the US as well as its subsidiaries in Australia.
Big tech is also expected to face increased regulation in areas of privacy and market control. This follows on from a high amount of media coverage about the influence big tech companies like Facebook have had on the American elections through ‘fake news’ and manipulative journalism. President Biden has already taken steps such as appointing advocates for stricter regulation of big tech to the Federal Trade Commission and the National Economic Council.
Implications for M&A
Unlike his predecessor, who planned on loosening the banking M&A rules, President Biden is set to make them more stringent. While former President Trump was in office, the Department of Justice (DOJ) had launched a plan to consider changes to the bank-merger review process. Now, with President Biden in the White House and the DOJ led by Attorney General Merrick Garland, there is pressure on the DOJ to institute a stricter review process.
The Federal Trade Commission under President Biden is also set to take a tougher stance on pharmaceutical mergers and acquisitions. This harder line also highlights a growing push for stronger antitrust enforcement across the economy, not just the pharmaceutical industry.
Outside of domestic policies, the Biden Administration is expected to take a stronger stance on foreign investment in the United States. Industries that are anticipated to be protected include emerging technologies such as autonomous vehicles and blockchain.