[Biden Era] How Will the Economy Change... Emphasizing Weak Dollar, Multilateralism, and Pro-Environment Policies

In the Bidenomics Era, How Will Economic Trends Change?
Biden Announces $1.9 Trillion Stimulus Package
Continued Money Injection... Economic Recovery Expected to Take Time, Multilateralism Revives

Positive Signals for the Korean Economy
Proactive Measures Needed for Eco-Friendly Policies

[Asia Economy Reporters Eunbyeol Kim and Chaeseok Moon] Five days before his inauguration, U.S. President-elect Joe Biden announced a $1.9 trillion (approximately 2,082 trillion KRW) economic stimulus package on the 14th (local time), opening the first chapter of "Bidenomics." The plan reflects a progressive inclination toward a big government through expanded fiscal spending, tax increases, strengthened regulations, and expanded welfare, and it is expected that a larger scale of liquidity will be injected into global financial markets.

With the Biden administration's launch, there is an assessment that the economy will be stimulated, benefiting the export competitiveness of domestic companies, while at the same time, there are calls for proactive countermeasures due to the policy emphasis on strengthening environmental friendliness.

U.S. Money Injection...Expectations for Stock Market and Export Improvement

On the day Biden announced the large-scale stimulus package, the 10-year U.S. Treasury yield in the New York bond market experienced a rollercoaster ride. It rose 3.9 basis points (1bp=0.01 percentage point) from the previous trading day to 1.128%, but after Federal Reserve Chairman Jerome Powell dismissed tapering concerns during an online seminar at Princeton University, it fell to 1.109% as of 8:30 p.m. (Eastern Time). The decline in Treasury yields that day was significant as it indicated the Fed's response to Biden's money injection policy. Issuing Treasury bonds is necessary to inject money, and the Fed's willingness to continue purchasing them was evident.

The dollar also weakened. The dollar index (measuring the dollar's value against six currencies), which had risen to 90.47 on the 11th, dropped to 90.25 following Chairman Powell's remarks. Kim Sung-taek, a senior fellow at the International Finance Center, said, "It is unlikely that the dollar's weakening trend will change," adding, "There have been few instances where the dollar strengthened when fiscal spending increased and taxes were raised."

Analysts generally agree that Biden's stimulus package will have a positive effect on stock prices and exports. If money flows to the American people, consumption will increase, revitalizing the economy, and if the U.S. economy improves, global trade can also recover. Gong Dong-rak, an economist at Daishin Securities, said, "Since the U.S. plans to inject a lot of money, it will help global trade, and from the perspective of Korea, which has an export-oriented economic structure, it does not seem unfavorable."

Jang Min, a senior researcher at the Korea Institute of Finance, said, "Measures such as direct cash payments to all Americans by the Biden administration will also boost U.S. consumer sentiment, which could be beneficial for Korea." Kim Sung-taek explained, "Currencies of other countries competing with us in exports, such as the yuan and yen, will also strengthen simultaneously, so the effective exchange rate of the Korean won may not rise significantly."

Expectations for the Revival of Multilateralism...Environmental Measures as Essential Tasks

Another characteristic of Bidenomics is the "revival of multilateralism." Since Korea has benefited from systems such as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO), the revival of multilateralism is viewed positively. However, there is an analysis that the full-scale revival of multilateralism may be delayed more than expected. Experts expect that the U.S. will be able to actively pursue trade policies next year after completing its COVID-19 recovery. Seo Jin-gyo, a senior researcher at the Korea Institute for International Economic Policy (KIEP), explained, "The U.S. is busy recovering its domestic economy," adding, "This means maintaining former President Donald Trump's unilateralism for the time being and not immediately engaging in WTO norm reforms."

Pressure on China is also expected to continue. The U.S. is likely to pressure China together with like-minded countries, citing democracy ideals, protection of advanced technology industries, human rights, and environmental issues. Korea, mindful of China, may find itself in an ambiguous position. Korea's trade dependence on China is about 25%, the highest among all export destinations.

Attention is focused on the additional stimulus package expected to be announced next month. It is expected to include infrastructure reconstruction and climate change response measures, which will have a direct relationship with Korean companies. Measures such as achieving zero carbon dioxide emissions in the power sector by 2035 and zero emissions economy-wide, as well as rejoining the Paris Climate Agreement, may be introduced.