As we are approaching the end of 2020, let us look at some of the major reasons why we can expect the U.S. dollar to kickstart the new year with a bearish tone.
From Trump administration to Biden administration
The U.S. inauguration will take place on 20 January 2021 whereby President-elect Joe Biden will be sworn in to office as the new President of the United States. This will mark the end of the U.S. protectionism policies enacted by President Donald Trump. During his term as the President, Trump has imposed tariffs (or at least threatened to do so) on other countries apart from China.
In June, after a review of the Trump administration’s tariffs on European goods, the U.S. Trade Representative announced the plan to impose new tariffs on some of the European exports which includes luxury goods. The tariff was initially imposed by the U.S. last year as a retaliation to the illegal subsidies made to Airbus by Brussels. In response to the action, the EU also retaliated, imposing tariffs on U.S. imports. Despite so, the EU still feel hopeful for an improvement in the trade relationship with the U.S. under the Biden administration.
A couple of months later, Trump announced the removal of the 10% tariffs exemption from imported Canadian aluminum, claiming that the increase in aluminum imports from Canada are hurting American aluminum producers. This led to the tit-for-tat response from Canadian Prime Minister Justin Trudeau, who announced that Canada will respond by imposing a 10% retaliatory tariff on U.S. goods. Fortunately, the trade tension between both parties was resolved after it was determined that Canadian aluminum imports is expected to decline, leading to the dropping of tariffs from both sides.
Under the new administration, Biden will take up a multilateralism approach as opposed to Trump’s unilateralism. This means that Biden will work hand in hand with other countries to build a strong trading relationship with them instead of applying tariffs on those countries in order to boost and protect the U.S.’s industry. The ending of protectionism will be the key to the U.S. dollar’s bearishness.
Furthermore, under Biden administration, taxation will be a big issue for businesses and the rich. As someone who is strongly against tax cut, Biden plans to increase corporate tax rate and impose a corporate minimum tax. Also, he plans to enact policies that will increase taxes of high-income earners through raising individual income, capital gains and payroll taxes. Biden’s unappetizing tax plan to the rich will no doubt add a downward pressure on the U.S. dollar.
Fiscal stimulus to the rescue
The long-awaited pandemic aid has finally arrived as President Trump signed the $2.3 trillion COVID-19 relief and government funding bill into law last Sunday. However, Trump was unsatisfied with the bill as it includes a $600 instead of his proposed $2,000 direct payment to most Americans. Nevertheless, the Democratic-held House of Representative voted for an increase in the direct payments to $2,000 the following Monday and now it is up to the Republican-led Senate to vote on the bill. In addition to this huge aid, Biden has also announced that his team will be pushing for more aid when he takes office next year. The passing of the huge fiscal stimulus and the hope of more to come next year sparked optimism, causing the market to move away from the U.S. dollar for riskier instruments.
COVID-19 vaccination
The recent progress of the COVID-19 vaccine has created more certainty in controlling the pandemic. Inoculation has started in the U.S and the U.K. while the EU will begin this week. The vaccines will also be ready for distribution to the other parts of the world in 2021. With the ongoing progress, risk appetite is expected to increase next year, leading to a lower demand of safe-haven currencies like the U.S. dollar.
From Trump administration to Biden administration
The U.S. inauguration will take place on 20 January 2021 whereby President-elect Joe Biden will be sworn in to office as the new President of the United States. This will mark the end of the U.S. protectionism policies enacted by President Donald Trump. During his term as the President, Trump has imposed tariffs (or at least threatened to do so) on other countries apart from China.
In June, after a review of the Trump administration’s tariffs on European goods, the U.S. Trade Representative announced the plan to impose new tariffs on some of the European exports which includes luxury goods. The tariff was initially imposed by the U.S. last year as a retaliation to the illegal subsidies made to Airbus by Brussels. In response to the action, the EU also retaliated, imposing tariffs on U.S. imports. Despite so, the EU still feel hopeful for an improvement in the trade relationship with the U.S. under the Biden administration.
A couple of months later, Trump announced the removal of the 10% tariffs exemption from imported Canadian aluminum, claiming that the increase in aluminum imports from Canada are hurting American aluminum producers. This led to the tit-for-tat response from Canadian Prime Minister Justin Trudeau, who announced that Canada will respond by imposing a 10% retaliatory tariff on U.S. goods. Fortunately, the trade tension between both parties was resolved after it was determined that Canadian aluminum imports is expected to decline, leading to the dropping of tariffs from both sides.
Under the new administration, Biden will take up a multilateralism approach as opposed to Trump’s unilateralism. This means that Biden will work hand in hand with other countries to build a strong trading relationship with them instead of applying tariffs on those countries in order to boost and protect the U.S.’s industry. The ending of protectionism will be the key to the U.S. dollar’s bearishness.
Furthermore, under Biden administration, taxation will be a big issue for businesses and the rich. As someone who is strongly against tax cut, Biden plans to increase corporate tax rate and impose a corporate minimum tax. Also, he plans to enact policies that will increase taxes of high-income earners through raising individual income, capital gains and payroll taxes. Biden’s unappetizing tax plan to the rich will no doubt add a downward pressure on the U.S. dollar.
Fiscal stimulus to the rescue
The long-awaited pandemic aid has finally arrived as President Trump signed the $2.3 trillion COVID-19 relief and government funding bill into law last Sunday. However, Trump was unsatisfied with the bill as it includes a $600 instead of his proposed $2,000 direct payment to most Americans. Nevertheless, the Democratic-held House of Representative voted for an increase in the direct payments to $2,000 the following Monday and now it is up to the Republican-led Senate to vote on the bill. In addition to this huge aid, Biden has also announced that his team will be pushing for more aid when he takes office next year. The passing of the huge fiscal stimulus and the hope of more to come next year sparked optimism, causing the market to move away from the U.S. dollar for riskier instruments.
COVID-19 vaccination
The recent progress of the COVID-19 vaccine has created more certainty in controlling the pandemic. Inoculation has started in the U.S and the U.K. while the EU will begin this week. The vaccines will also be ready for distribution to the other parts of the world in 2021. With the ongoing progress, risk appetite is expected to increase next year, leading to a lower demand of safe-haven currencies like the U.S. dollar.
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