The US elections pose an important event risk for markets, to the point that it has currently upstaged most pandemic related news in terms of market movements. As we move closer to Election Day on November 3, it is important to remain aware of the implications of a victory of either candidate.
Foreign policy under a Biden administration should generally be good news for world economies if it entails a multilateral, rules-based approach to foreign affairs, although protectionism and inward focus should persist. This contrasts against President Donald Trump’s approach, which has been described as unilateral, transactional and erratic. Support for multilateral institutions such as the IMF, WTO and NATO will be stronger under a Joe Biden administration, offering a potentially more stable environment at global level.
However in terms of trade, Biden is expected to champion the Buy American programme, which the democratic party is pushing hard, in an attempt to reduce the incessant surge of rival economies like China. Indeed federal funds are expected to be employed in “strategic sectors” such as tech and manufacturing, along with additional levies on some imports. This could create some friction, not only with China, but also with other trade partners such as the EU, South Korea and Japan.
On the plus side, US-China tensions may ease if Joe Biden is elected president, but would not disappear. Under Biden, we would expect a tactical change but not a fundamental shift in US strategy towards China. While a return to multilateralism at a global level should improve the overall trade backdrop and facilitate greater dialogue and cooperation with China in areas including global warming and nuclear arms control, China would still be seen as a strategic competitor.
On China, Biden has criticised “abusive” trade practices and said his policy would put a “heavy focus on democracy and human rights”. He has said he would work with US allies to mount a coordinated response to “pressure Beijing” where needed, but also seek to cooperate with China on “global challenges”. China itself is expected to continue to shift its economy away from exports and towards domestic demand and the cultivation of its middle-class, as insurance against a less-globalised world.
The American populace appears to have become increasingly suspicious of China in recent years, irrespective of party leanings. Biden has deemed Trump’s trade war “self-destructive”, but has not said whether he would remove additional duties imposed on Chinese imports. In the Latam region, countries would benefit from calmer bilateral trade relations and via US support for institutions such as the Inter-American Development Bank (IADB), the World Bank and the IMF could indirectly help debt-stressed nations in the region, including Argentina and Ecuador.
Relations with Brazil are expected to be more mixed as Biden’s green agenda conflicts with Brazil’s policies on the environment in general and on the Amazon in particular, and may refuse to sign trade deals with Bolsanaro’s administration. Biden was an early critic of Vladimir Putin and we would expect a tougher US stance towards the Kremlin under a Biden administration.
However, an increasing amount sanctions-related activity is currently led by the Senate, where there is an already a hawkish consensus, reflecting US public opinion. Biden’s platform suggests that closer US cooperation with the EU in dealing with Moscow would be likely, along with support for NATO, despite potential friction with Eastern Europe.
In the Middle East, Biden has an “ironclad” commitment to Israel’s security, rebuffing calls inside the party for conditional military support despite its opposition to plans by the ruling Israeli coalition for the unilateral annexation of parts of the Jordan Valley.
Overall, a Biden victory brings about a higher level of predictability and diplomacy, which is commensurate with more stable financial markets due to a decreased level of political risk.
Disclaimer: This article was written by Simon Psaila, investment manager at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd, which is licensed to conduct investment services business under the Investments Services Act by the MFSA and is registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018. For more information visit https://cc.com.mt.
The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.