Page 21 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY

“ Defence and national security rising as a key theme will

focus oversight on export controls and financial/investment

restrictions in 2023, aimed at critical emerging sectors
across advanced technology, biotech, and clean energy. ”

support, but ‘noise’ around spending specifics should be Trade Commission and the Department of Justice antitrust divi-
expected from certain political factions. Similarly, antitrust and sion will likely continue to expand their competition enforcement
competition policy—particularly relating to tech—has overall activities (with a particular focus on mergers) in line with the
bipartisan backing, but specifics on content moderation and con- Biden administration’s stated desire to take a “whole of govern-
sumer protection will be where fracture lines may emerge and ment approach” to antitrust.
extend timelines for any impactful legislation.
WHILE CHINA FRICTIONS WILL LIKELY PERSIST,
Cryptocurrency will see heightened legislative attention following
the ongoing fallout around FTX Trading Ltd. Bipartisan interest in SIGNS POINT TO FLATTENING ESCALATION
cryptocurrency regulation is strong, as are calls to more strin- Years of escalating tensions across various economic, trade,
gently regulate digital assets; however, a growing minority in financial, and national security issues have raised market con-
Congress is advocating for a hands-off approach to crypto legisla- cern over a trajectory of ‘decoupling’ and potentially direct
tion (so not to legitimise an industry that has demonstrated conflict between the U.S. and China as a key driver of risk. How-
limited viable socioeconomic benefits, in the eyes of some law- ever, the most recent signals following China’s leadership
makers). selections in October, the results of the midterm elections in the
U.S., and the first in-person meetings between President Biden
The debt ceiling is primed to be one of the most contentious issues and China’s Xi at November’s G20 meetings point to a flattening
facing the new Congress in 2023, with Republicans poised to take of the escalation potential that raises the possibility of construc-
a hard line in negotiations in exchange for Democratic conces- tive progress. While the heads of both nations demonstrated the
sions on social spending and entitlements. While this may cause a ability for their personal relationship to generally turn down the
period of headline risk for markets (especially if lawmakers begin temperature, the political setup in the U.S. and in China will con-
to push against a deadline), we ultimately expect Congress will
settle on a compromise solution to avert a debt ceiling breach that tinue to support frictions in 2023—especially around tech/
threatens the credit rating of U.S. government securities. financial restrictions and the fate of Taiwan.
From a U.S. perspective, a Republican-led House will attempt to
BIDEN’S REGULATORY AGENDA: FULL STEAM AHEAD challenge the Biden administration on foreign policy and push
Given the gridlock in the new Congress, supercharged regulatory policymakers toward more hawkish positions on China issues. A
actions should be expected as a key mechanism to advance the Democratic Senate will serve as an insulating factor keeping some
priorities of the Biden administration in areas such as financial of these fights to Congress, but Republican House lawmakers will
regulation, consumer protection, labour, climate, and competi- have opportunities to shape foreign policy decisions via oversight
tion policy. The Department of Labour will release a final rule and leverage on must-pass legislation. Defence and national secu-
which could begin to reclassify some gig economy contractors as rity rising as a key theme will focus oversight on export controls
full employees. We expect considerations around climate change and financial/investment restrictions in 2023, aimed at critical
to continue to be integrated into financial supervision and regu- emerging sectors across advanced technology, biotech, and clean
lation, and the SEC is expected to release its long-awaited final energy. A more assertive U.S. position on the defence of Taiwan
rule on climate disclosures in early 2023 (whether this survives a and support for its military capability is also likely to support ele-
court challenge will be a separate issue). Lastly, the Federal vated frictions. While we do not see China becoming more

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