Economic Insights: Biden’s Crucial Second Year | Lombard

President Joe Biden told the nation at his January 2021 inaugural address that his administration will be judged by how it meets the “cascading crises of our era”.

As he begins his second year in office, President Joe Biden’s plate is full. His administration faces an underwater approval rating, a fresh surge in Omicron cases, multi-decade high inflation, foreign policy challenges, and intra-party frictions that threaten his legislative agenda.

And on top of these challenges, his party risks losing both of its majorities in November’s midterm elections.

All of these factors will make 2022 a fascinating year in US politics, and how Biden navigates a handful of key events and themes will be crucial in the first few months of this year.

The key economic issues to watch

1. Trade policy

Trade policy has been much quieter under Biden compared to his predecessor, Donald Trump. The US-China relationship remains tense, but economic escalation has largely been avoided. With the two-year anniversary of the signing of the US-China Phase One trade deal looming in February, and China well short of import commitments pledged as part of that deal, there is a risk of more active trade engagement in 2022. However, the threat of rising consumer prices, at a time when they’re already reaching record heights, is likely to contain any escalation between the two nations.

2. Foreign policy

Although the Biden administration passed two significant stimulus packages in 2021, the final major piece of stimulus legislation hit a roadblock in December when Senator Joe Manchin withdrew of his support. With that in mind, Biden’s focus on foreign policy may increase. He began his term aiming to revive America’s alliances – and using those strengthened alliances as a launching point to meet its strategic competitors. This is likely to remain the overarching goal of the administration’s foreign policy in 2022.

3. Energy prices

Energy prices are set to remain a flashpoint for the administration in 2022. Rising petrol prices are already forecast to be a major campaign battleground issue for the November midterm elections, and both active (further releases from strategic reserves) or passive (pressure from the Organization of the Petrol Exporting Countries) efforts to rein in petrol price increases are possible.

4. China and Russia

Confrontation with China over trade assurances laid out in the US-China trade deal is looming in February. Meanwhile, US-Russia relations will continue to be tested amid rising tensions in Ukraine and the threat of a Russian invasion.

5. Inflation

Reversing high inflation will be key going into the November midterms. Recent polls suggest Americans are growing more worried about inflation, even viewing it as a greater concern than employment. Biden’s approval rating on the economy, and more broadly, sits below 50%, and the governing party historically struggles in the midterms following a presidential win. All of these factors add urgency to Biden’s need to curb inflation – or, at the very least, to own the narrative around it.

6. Fiscal stimulus

With two significant stimulus packages already secured in his first year in office, a top Biden priority will be to revive the Build Back Better bill, which was imperilled by Joe Manchin’s high-profile rejection of the legislation. The President’s annual State of the Union address, on 1 March, will probably be Biden’s target for a revival of negotiations.

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