2021: A Brighter Year Ahead for Global Corporations

Sarah Hewin, Head of research, Europe and the Americas

While 2020 was a year that businesses, governments and individuals alike would rather forget, there are signs that 2021 may be brighter. For international corporations, the Biden presidency along with successful vaccine rollouts are likely to offer a much-needed boost, with greater confidence in global trade, and the rebuilding – albeit slowly – of industries that have been hardest hit by the pandemic.

The path forward becomes clearer

A new Democratic majority in the Senate is set to have a significant impact on Joe Biden’s ability to implement election pledges. These include spending commitments that could mark substantial changes – and costs – for business, such as the proposed 7% hike in the corporate tax rate (from 21 to 28%), offshoring penalty surtaxes and new rules on calculating foreign earnings.

Many corporations had welcomed a divided Congress on the premise that compromise would lessen the impact of tax and cost measures potentially damaging to business in an already fragile economic environment. However, this could impact domestic policy more than foreign affairs. Informal polls among our clients suggest that international companies value greater predictability, multilateralism in international relations, and the potential growth in global trade expected as a result of Biden’s presidency.

Balancing protectionism with global confidence

Despite greater predictability in trade and foreign affairs, Biden is unlikely to return to the free trade playbook of Obama, with his “Made in America” policy indicating that some protectionism will continue. However, looking at the US relationship with China, which will continue to have a global impact, Biden is likely to work more collaboratively with allies in Europe and Asia than his predecessor. Asia, in particular, would benefit from a more collaborative, pro-trade stance. Even so, Biden has indicated that he will continue to take a tough position on China, including on areas such as US exports and investment, intellectual property rights, forced technology transfer and human rights. As a result, the relationship between the two countries is unlikely to change significantly. The weakening of the USD anticipated under Biden could be supportive for emerging-market currencies, particularly appreciation in both high- and low-yielding currencies in north and south Asia.

We may see some global relationships being reset under Biden, such as with Saudi Arabia, including on equality and humanitarian grounds. He may also revisit the relationship with Iran – although unlikely in the short-term, which could change the balance of relationships between the US and its Arab allies.The relationship with Turkey was volatile during the Trump administration, although Trump resisted Congress’ attempts to impose restrictions on Turkey. Biden may take a different path.

Securing a post-COVID future

While a new era in US politics will undoubtedly impact the global economy and geopolitics, so will the rollout of multiple vaccines. Given the financial and human costs of COVID-19, which have struck at the heart of the global economy, the prospect of a vaccine became the defining event at the end of 2020 for many corporations. Although the vaccine rollouts will likely not take place at the same pace globally, we can expect to see substantial progress in both the United States and Europe during the first half of 2021. This, in turn, could allow travel, tourism and hospitality to resume, while corporations across all industries would breathe a sigh of relief if social restrictions that hampered their business started to ease. The positive growth impact is unlikely to be fully felt until the second half of 2021. This would not completely close the output gap created by the COVID crisis; however, we expect global GDP growth to bounce back to 4.8% in 2021 from a 3.8% contraction in 2020.

Tackling COVID-19 and its effects will likely define the early stages of Biden’s presidency. Together with foreign policy actions, many of the domestic policy decisions he takes early on will have global ramifications, affecting confidence among consumers, financial markets, global governments and institutions, and corporations engaged in global trade. While President Biden’s domestic policy agenda offers a very different vision from Trump’s, he is still likely to favor American industry and jobs. Even so, the green shoots of a post-COVID recovery, and a resetting of global trade and geopolitical relations offer a positive outlook for corporations in 2021 and beyond.

Read more about the impact of COVID-19 in organizations across Europe and the Americas in our client survey.

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