Hello from Washington DC, where the electoral college has voted to seal Joe Biden’s victory in the US presidential election and even Mitch McConnell, the Republican Senate majority leader, finally congratulated him on the win (on the same day as recalcitrant world leaders like Vladimir Putin and Andrés Manuel López Obrador). There is also a rising chance that Congress agrees on a new dose of fiscal stimulus before the end of the year, which could do a lot to support the US recovery. Meanwhile, Biden is filling out his cabinet, with Katherine Tai as US trade representative. Our main piece today seeks to offer a flavour of who is she, and what she brings to the job. The risk of a rebound in inflation is the focus of chart of the day, while our Person in the News is Mike Crapo, the Republican expected to take charge of the most powerful panel for trade policy in the US Senate.

Katherine Tai introduced herself as Joe Biden’s pick to be US trade representative last week by telling a couple stories about herself. The first was that she was born in Connecticut to scientists from mainland China who grew up in Taiwan before moving to America in the 1960s thanks to John F Kennedy’s immigration reforms. The second was about how her “heart swelled with pride” when, during a multiyear tenure in USTR’s general counsel’s office, she travelled to Geneva to sue China at the World Trade Organization. That comment may point to Tai’s greatest calling card as she prepares to succeed Robert Lighthizer in the Winder Building near the White House — as a specialist in enforcing US trade agreements and laws at a time when domestic investment will take priority over trade liberalisation.

Tai will inherit one of the most economically sensitive, diplomatically delicate and politically treacherous portfolios in the new administration, after Donald Trump’s trade wars, spearheaded by Lighthizer, disrupted US commercial relations with much of the rest of the world. Tai will be joining the ranks of several women to have held the USTR job in the past, including Susan Schwab under George W Bush, Charlene Barshefsky under Bill Clinton and Carla Hills under George HW Bush.

So far, the reception has been uniformly good across the various factions of the Democratic party, including labour unions and business: Tai is well-known since she has been the party’s chief trade counsel in the House of Representatives and was pivotal to ensuring passage of the USMCA trade deal with Canada and Mexico that replaced Nafta. “She is just a rock star professional,” Andy Kim, a Democratic congressman from New Jersey, told Trade Secrets. “She is somebody who just knows these issues inside and out, and understands the nuances of how to get things done.”

With regards to China, Tai will be in charge of making sure Beijing sticks to its commitments under the “phase one” agreement signed in January by Trump and Chinese president Xi Jinping, and assessing whether China makes enough additional concessions to merit a reduction in US tariffs on Chinese products.

It is a high bar to clear, but as a fluent Mandarin speaker who has taught English to students in China, and taught the cultural revolution to students at Harvard University, Tai seems well positioned to manage it. With regards to the EU, Tai’s biggest challenge will be to try to resolve the disputes that erupted during the Trump presidency, from metals and cars to aircraft subsidies and digital taxation, and possibly begin to forge a path to a deeper transatlantic trading relationship which could itself put more pressure on Beijing.

One of the most difficult tasks for Tai will be to manage expectations in foreign capitals for a quick reset in trade relations after the turmoil of Trump’s years, since that process could well take longer to unfold and the incoming Biden administration may be sympathetic to some of Lighthizer’s more aggressive actions.

But foreign trade officials who have dealt with Tai in recent years — often as they passed through Washington and needed to check in with staff on Capitol Hill — have been encouraged by her selection. “I think she is a great person with great conviction, but mostly with great skills in bringing together people and working towards compromise,” said one, adding: “That doesn’t mean things are going to be easy, but we will be able to work with her, speak with her and deal with her.”

Bond investors are braced for the risk that 2021 could herald the return of a long-dormant foe: inflation. A rebound in inflation, which has been elusive since the 2008 financial crisis, could disrupt widely held expectations by making the debt market look less attractive. Bonds typically provide investors with a fixed stream of interest payments, which become less valuable as the overall cost of goods and services accelerates.

Line chart of US 10-year break-even rate (%) showing US inflation expectations climb as investors await economic recovery

Assuming that Republicans retain control of the US Senate, which cannot be taken for granted until the results of the Georgia run-offs are known in early January, there will be a change at the helm of the Senate finance committee, the most powerful panel for trade policy in the upper chamber of Congress. Chuck Grassley, the Iowa senator who relentlessly pushed US farm exports to the rest of the world, will be making way for Mike Crapo of Idaho, according to the latest reports. When Max Baucus on the Democratic side chaired the finance committee, it was well known that opening markets to Montana beef was key to any trade agreement with the US, and the same might apply with Crapo — swapping it with Idaho potatoes.

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