The two lawmaking branches are busy on items that should be of investor interest, while markets at present care nearly myopically about the Fed. China and competition policies are undergoing meaningful changes, the former demonstrably quicker than the latter. Both could mark lasting directional breaks worthy of steady attention.
The INNOVATE Act has many moving pieces but the legislation is unequivocally intended to improve the US position in the unmistakable G2 competition. Bipartisan negotiators are nearing agreement on provisions that not only signal enactment but also make clear that G2 multi-faceted engagement is robustly more difficult and consequential. The bill blurs the lines between protectionism and sovereign self-interest. If enacted, as we expect, winners likely include US globally important banks tasked with managing G2 realities. US microchip manufacturers and end-users, defense contractors, and tech enterprise providers are among other likely beneficiaries.
During the 20-year period since China’s acceptance into the WTO as a non-market economy (in December 2001), the US business community, many in Congress, and Presidents Clinton, W. Bush, and Obama were to varying degrees stalwarts against changing US/China trade policies. The current administration’s China hawks perceive a reset advantage as US businesses realize downsides to China’s business environment are structural under President Xi. The pivot has strong bipartisan congressional support, an unabating trend that has been in place for five to seven years.
Biden’s antitrust agency heads and National Economic Council principals remain focused largely on domestic competition policy. They seek to confront what they view as monopolies and oligopolies benefiting greatly from network effects facilitated by their size and market power. Merger guidelines have been under review all year, a process the FTC and DoJ intend to conclude before 2023. The FTC today and tomorrow will give Pharmacy Benefit Managers (PBMs) a go-over after months of receiving information from health care providers and patients about their perceived market abuses. On June 21, the agency will host a “listening forum” for the public to explain views of the economic and marketplace consequences of mergers.
Competition policy developed or unchallenged by the first three 21st Century presidents, and the US business community’s preference for unfettered ability to operate in China are under pressure from a bipartisan Washington. The China policies of Presidents Trump and Biden mark a distinct departure from their predecessors. Of the macro policy uncertainties causing significant adjustment, nothing displaces the Fed and other central banks’ 2022/23 priorities. But we expect changes to US antitrust and China policies that will likely impact markets farther into the future.
