America is a safe haven for financial investors around the world. The violence in Washington, D.C., fuelled by a president who has defied the will of the people, puts the US and its sanctuary status to a serious test.
Supporters of President Donald Trump stormed the US Capitol on Wednesday seeking to undo his election loss and prevent the certification of Joe Biden as president-elect. Lawmakers were evacuated, gunshots were fired, and teargas deployed. Yet markets were, by late afternoon, little moved. Yields on ten-year Treasuries fell slightly during the latter half of the day. The dollar didn’t budge against major trading partners’ currencies, and the S&P 500 Index actually rose.
Nervous investors
This calmness may be partly an illusion. A delay is no real threat to Biden’s inauguration on January 20, and an assault on the seat of government by riled-up fanatics is not an organised coup. While the sight of intruders with their feet on senators’ desks is shocking, Washington is no stranger to protest. But in nervous times, investors buy dollar assets. That doesn’t mean they’re not nervous.
What matters most is whether and how quickly the US system can get back on track. Some politicians who had earlier decried, without evidence, the legitimacy of November’s election took to Twitter to call for calm, including eventually the president himself. If Washington gets back to work quickly, faith in US institutions may even be strengthened.
Political weapon
The problem is that this is unlikely to be the last such challenge. Trump has delivered several blows to America’s global credentials. His use of tariffs as a political weapon against trade partners like Europe and China, his divisive rhetoric since long before his election in 2016, and his refusal to accept electoral loss in 2020, have normalised behaviour that would have made most previous presidents blanch.
The Capitol violence was enough of a jolt that the National Association of Manufacturers, which counts representatives of companies like General Motors and Pfizer on its board, suggested Vice President Mike Pence might coordinate the constitutional removal of Trump, whom it blamed for inciting the violence. Biden has called for peace and unity, but fractures in US society remain. Investors’ sanguine response may be right this time, but when it comes to pricing US risks they shouldn’t assume it always will be.