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Why Biden winning the US election won’t end the US-China trade war | Trustnet Skip to the content

Why Biden winning the US election won’t end the US-China trade war

01 September 2020

Trustnet considers whether a Joe Biden win in the US presidential election will bring an end to the political and economic trade war with China started by Donald Trump.

By Eve Maddock-Jones,

Reporter, Trustnet

A win for Democrat Joe Biden in the US presidential election might not end the US-China trade tensions, says independent fund consultant Andy Merricks, and could even make the situation worse.

Asked whether Biden winning the presidential election will end the US-China trade war. Merricks (pictured) said: “The first part of the answer is an emphatic ‘No’ – a Biden victory won’t end the US-China Trade War. If anything, it may well escalate.

“In fact, this is the second wave that I’m most concerned about for markets.”

Merricks continued: “The second wave of Covid-19 will most likely be met with a vaccine and is unlikely to trigger a market response such as we saw in March 2020.

“A second wave of the US-China trade war is potentially far more damaging to global markets on a longer-term basis.”

Under Donald Trump, the US has pivoted into a more confrontational stance with the rival economic superpower which the incumbent has accused China of being unfair in how it trades with the US.

Things escalated in 2018 when the US president applied tariffs and other trade barriers to China’s imports over perceived ‘unfairness’ and allegations of intellectual property theft.

The burgeoning trade war was a major concern for markets as it created uncertainty about established multilateral trade relationships and the impact tariffs could have on the economy, sending the S&P 500 into a rare, post-financial crisis down year.

Performance of S&P 500 in US dollar during 2018

 

Source: FE Analytics

While a Phase One deal was agreed at the start of 2020, prompting some stability for markets, the Covid-19 coronavirus has thrown the plan into disarray.

Since March, when cases of coronavirus began to escalate in the US, Trump blamed China for the outbreak of coronavirus and the ensuing economic crisis, reigniting tensions and raising concerns about further salvos in the trade war.

But, even without the coronavirus crisis, any US presidential candidate would have had to take a strong stance against China if they were to be in favour with the US voters on that issue.

Research carried out by the Harvard CAPS/Harris Poll – an online monthly poll of 2,000 US voters carried out by Harvard’s Centre for American Political Studies and Harris Insights and Analytics – found that the American voter has a strong, and very negative opinion of China.

In the most recent poll when asked “Do you consider China to be a friend or enemy of the US?”, 53 per cent responded ‘Enemy’.

In the same survey when asked about the coronavirus and whether the Chinese government was primarily accountable for the crisis, 60 per cent said China was to blame.

And finally on the US-China trade war, 46 per cent said that China was responsible.

Looking at this data alone, Merricks said: “This is why I don’t see US-China tensions diminishing after the election.”

But, there is a case that even without the coronavirus sweeping aside the Phase One deal Biden would not have let the Chinese trade war end peacefully.

One case-study is at the Democratic debate in Charleston in February this year, Biden heavily criticised China’s leader, Xi Jinping.

He said: “This is a guy who doesn’t have a democratic – -with a small ‘d’ – bone in his body. This is a guy who is a thug.”

A comment Merricks said was “more expected to be used by his Republican opponent rather than the leader of the second biggest economy in the world”.

So, while ending the trade war would be favourable for markets, an end to tensions might not be on the cards.

And the fact that this rivalry has been ongoing for a number of years is further reasoning that a Biden win won’t end the trade war, according to Catherine Yeung, investment director at Fidelity International.

Yeung said: “I think that most countries around the world are reassessing or recalibrating their trade relationships with everyone else because we’re living in a new paradigm where things are changing.

“This [tense] trade relationship between the Chinese and the US has been going on for over two years, and it’s not going to change on the outcome of the election.”

Yeung - who is the investment director of both Fidelity China Special Situations and Fidelity Asian Values - said China has already made its ambitions clear about becoming a global economic leader, contributing to a more competitive relationship with the US.

“China has made no secret about where it wants to be in terms of its positioning trade wise,” she explained, adding that the rival superpower wants to transition its economy from one of global manufacturers to the “innovators of tomorrow”.

“The relationship has changed and has become a lot more competitive,” she said. “So, I think, in the long-term, you might see periods of market volatility as a result of this competitive nature that we’re seeing between these two economies.”

Ultimately, Biden becoming president will only change two things about the trade war, said Merricks.

One, any Democrat-led government will likely focus more on the “human rights issues in China, as well as the threat to trade”.

And secondly, Biden will likely take a more protectionist stance, a position Merricks said would not be good news for markets.

“Trump has lashed out at everyone, including Europe,” Merricks said. “Biden may well try to keep a left-leaning EU more on side to work with the US against China than to try to go it alone as the current White House incumbent appears to favour.

“Either way, protectionism is rarely good news for global markets and the reversal of globalisation will most likely continue through 2021 and beyond.”

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