The FT estimates the United Kingdom has given up EUR6 billion of daily volume since the end of last year. There have been some problems with the new arrangements for goods moving from Great Britain to Northern Ireland as businesses get to grips with the new customs compliance requirements at Northern Ireland’s ports. The Northern Ireland protocol aligns Northern Ireland to EU rules for goods in order to avoid a hard border between Northern Ireland and Ireland. Third, while the deal helps the immediate economic outlook, it marks a step change toward a more distant, complex economic relationship with the EU. The overall decline in retail sales happened at a time when the number of infections was soaring and when some states were imposing limited restrictions on economic activity.
Biden has said that he intends to address such issues through multilateral cooperation with European allies. The fact that the EU signed an investment agreement with China absent US involvement was a disappointment to the Biden team and could influence how the United States approaches certain issues going forward.
Individual income and consumer investing both declined in Nov and some measures associated with housing activity weakened right after many months of good performance. The weakness probably resulted from the impact of the massive surge in the virus. Although the number of new infections began to abate toward the end of December, public health officials worry that the increase in holiday travel in late December will result in yet another surge in infections in early January. Will the incoming Biden administration pursue similar efforts to cause a decoupling between the two sides?
It is too early to say, but it seems likely that the new administration will, at the least, attempt to lower the temperature and to engage China in discussions meant to ease some economic restrictions. For example, Biden himself said that he will reconsider the tariffs imposed by the current administration. It is likely that he will seek negotiations aimed at cutting bilateral tariffs and other restrictions. At the same time, Biden and his team have indicated concern about many of the same issues that the Trump administration has attempted to address. These include forced technology transfers, lack of protection of intellectual property, national security considerations regarding Chinese technologies, and US concerns about geopolitical and human rights issues in China.
Now that we are in January and the number of infections continues to increase, it seems likely that retail sales will not perform well during this month and could decline again. At the same time, a new stimulus package was passed at the end of December, which provided US$600 to most individuals and provided extended unemployment insurance to millions of unemployed workers. In addition, as discussed below, President-elect Biden has proposed a further US$1, 400 cash disbursement to most individuals as well as increased unemployment insurance. It is likely that Biden’s proposal, in some form, will pass the Congress within the next two months. If so, and if the virus is adequately suppressed, it could set the stage for a rebound in retail sales. Moreover, if there is an acceleration in vaccine distribution in the coming months, the result could be a much different environment by the second half of 2021. Whether or not this will be as important under a Biden Administration as under the Trump Administration remains to be seen.
There has been much talk about an economic decoupling of the United States and China. This reflects the rise of restrictions on trade, cross-border investment, technology transfer, and even travel. That is, even while the US imposes restrictions on capital flows from China, China is increasingly welcoming capital coming from the United States. The deal provides very limited agreement on services, particularly financial services. The volume of euro-dominated shares being traded in London has fallen sharply.
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