It’s been a tumultuous year for the US and it shows no signs of easing up as the country continues to battle a global pandemic and prepare itself for an election next month.
Barings Investment Institute’s chief global strategist Christopher Smart examines the rhetoric of the candidates and what the future economic landscape could look like in the US, whoever the president is.
FDI Inflows: Top-10 destination markets ($bn)
Source: UNCTAD, Global Investment Trends Monitor. As of February 2020
Capital has continued to flow into the US, as the chart above shows, with foreign direct investment hitting an estimated $254bn during 2019.
But Smart argued that the bitter presidential campaign between incumbent Donald Trump and Democrat Joe Biden has exposed the dysfunction in the US political debate and raised questions for nervous investors.
Smart asked: “If investment is all about trust, what do pools of foreign capital see in the US that is barely visible amid a campaign that has turned so personal and divisive?
“Sure, there are deep markets and resilient institutions, but how much can you trust a country that seems so uncertain about its role in the world and whose leaders can’t agree on its commitment to promote global trade?”
He said divisions go beyond the individual candidates, representing a deeper issue and will likely remain in-place regardless of who wins in November.
The strategist argued that the “sorry state” of the American middle class has pushed voters to either extremes of the political spectrum.
Indeed, Smart highlighted polls by Pew Research Center conducted prior to the Covid-19 pandemic when the economy was still going strong, which showed roughly two-thirds of respondents expected their children would be financially worse off than their parents.
Source: Pew Research Center
Furthermore, the research centre found that while earnings for middle-income households grew approximately 40 per cent between 1970 and 2000, they are up only 10 per cent in the last two decades.
Smart (pictured) continued: “To be sure, the industrial workforce has been shrinking in most developed economies due to global competition and improving technologies. 
“But American engagement in global affairs and commitment to open markets isn’t sustainable if a large pool of its voters believe those policies let them down.”
The Barings strategist also highlighted a report by the Carnegie Endowment for International Peace – ‘Making US Foreign Policy Work Better for America’s Middle Class’ – which suggests reframing the debate around America’s economic policy beyond trade deals and manufacturing jobs that have already gone.
“While communities across the US have lost to intense competition from China and other emerging markets, many middle-class households prosper from brand new opportunities in services and advanced industry,” he said.
“In spite of what the politicians may say, Americans still overwhelmingly understand that trade supports economic growth.”
The issue lies in the fact that the benefits of global financial and trade flows do not trickle down to the people who are often more adversely affected.
As such, the report argued for a foreign policy that “bends over backwards” to ensure benefits of global financial and trade flows are shared better.
The rhetoric among voters seems to be different than the politicians, the report compiled the views of people in Ohio, Colorado and Nebraska, who argued that the focus needs to be drawn on developed markets, rather than solely focusing on China.
“All this gives some hope for a fresh approach to American engagement in the world,” said Smart.
“With overwhelming numbers of voters believing that America should take a major or leading role in world affairs, a narrow focus on ‘America First’ seems more like a course correction than a durable basis for policy.
“Yet a simple return to more traditional approaches that expand global market access while leaving many American communities unprotected from the economic dislocation won’t work either.”
He argued that economic common sense, as oppose to political slogans and disparate philosophies will build the future path.
Ensuring the US remains competitive and resilient, with an emphasis on developing a more tech-savvy workforce, reinforcing digital infrastructure and safeguarding supply chains.
He concluded: “It’s hardly a complete answer to the challenge, but it may be a strategy that helps rally broader consensus around American engagement abroad and reassure foreign investors that they haven’t bet wrong.”