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INVESTMENT STRATEGY QUARTERLY

for Democrats to raise the debt limit with a simple majority vote, semiconductor and other sensitive supply chains to areas deemed
the option is not off the table. Ultimately, the reconciliation less vulnerable to potential economic disruption.
instructions can be amended, or a separate budget resolution
can be passed purely to address the debt limit, although this is a IN ALL, A CONSEQUENTIAL FALL
procedurally drawn-out process. From a big picture perspective, As discussed, the scope of the political agenda through the end
although concerns over fiscal showdowns have been elevated, we of the year sets up a key timeframe for the market as a catalyst
see a pathway to the resolution of the debt ceiling debate without for the finalisation of Biden’s domestic economic agenda. We
threatening a breaching of the fiscal cliff. expect decisions made by lawmakers in the coming weeks and

months to carry significant impact into 2022 and beyond as key
PREPARING FOR WHATS NEXT: U.S./CHINA TENSIONS policy changes are implemented and digested by markets. The
ON ESCALATORY TRAJECTORY finalisation of these policy priorities also opens the door to new
Earlier this year, we highlighted that the Biden administration focus areas by the administration and Congress in 2022, which
views U.S. domestic and foreign policy as interconnected and at this stage we see focusing on reigning in the market power of
aims to enact economic policy to ensure the U.S. remains globally dominant technology platforms and increasing broader antitrust/
competitive with China. This philosophy has arguably led to a ‘no market concentration scrutiny. Expect the rest of this year to define
bark, all bite’ dynamic as capital markets, national security, and the political conversation into the 2022 midterm elections that will
human rights pressures drive the downward trend in U.S./China determine the impact of policy decisions from DC through 2024.
relations. Looking ahead, we see greater chances of increasing
confrontation tied to the year-end target for commitments made
under the 2019 “Phase One” trade deal, hawkish legislation being KEY TAKEAWAYS:
developed in Congress, China enacting foreign capital market • We believe the most likely final outcome remains
barriers for domestic firms, and 2022 focusing attention on China’s passage of an overall economic package between $2
human rights issues ahead of the February Winter Olympics. The trillion and $3 trillion, with tax increases and other
Biden administration’s actions may turn more hawkish on China in revenue changes to offset a significant portion of the
the aftermath of the Afghanistan withdrawal and ahead of the 2022 new funding..
midterms, which may be reflected in comprehensive China policy • Although concerns over fiscal showdowns have been
legislation Congress aims to finalise this fall. elevated, we see a pathway to the resolution of the
debt ceiling debate without threatening a breaching
A top geopolitical risk for the market is China’s approach on Taiwan
reunification efforts and the impact on global supply chains. There of the fiscal cliff.
are major market concerns over a potential invasion or other • The Biden administration’s actions may turn more
military moves on Taiwan by China, which may rise as a concern for hawkish on China in the aftermath of the Afghanistan
investors as tensions continue. Rhetoric may add to this concern by withdrawal and ahead of the 2022 midterms, which
both the U.S. and China over Taiwan’s fate, especially in and around may be reflected in comprehensive China policy
the renewal of General Secretary Xi Jinping’s leadership position in legislation Congress aims to finalise this fall.
2022. Taiwan will continue to be seen as one of the top geopolitical • Expect the rest of this year to define the political
risks, and current U.S. military posturing toward building up U.S. conversation into the 2022 midterm elections that
forces in the pacific region is a dynamic to watch for increased will determine the impact of policy decisions from DC
conflict potential. In the near term, these dynamics accelerate through 2024.
U.S. planning and policies investing in the diversification of

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