With three weeks until the US presidential election, Western Asset Management’s Andreas Billmeier breaks down the approaches to policy of two very different candidates.
Broadly speaking, Billmeier – a sovereign research analyst said the US could expect more of the same if incumbent Donald Trump is re-elected in November.
However, a Joe Biden presidency would likely reinstate a level of international cooperation and civil dialogue to the US political sphere.
Yet, if Biden is elected it wouldn’t be as straightforward as reversing the policies of Trump and he may be presented with several headwinds.
“The Biden administration may not be able (or willing), however, to immediately and completely step away from the policy choices made under Trump,” he said.
The analyst also outlined that Biden faces somewhat of a ‘catch-22’ situation in committing to a green agenda whilst also trying to stimulate employment in industries like oil & gas.
The ongoing issues of international treaties and diplomatic relationships are also pressing for both candidates.
Biden vs Trump in the national polls
Source: FT
Early into his presidency, Trump identified the goods trade balance as an important measure of national wellbeing.
“A negative bilateral balance – from the US perspective – would imply a disadvantage for the US, in particular if appeared to relate to the loss of manufacturing jobs,” said Billmeier.
He explained that this was behind the aggressive trade policy with extensive use of tariffs.
Billmeier explained: “The degree of intensity surprised observers but is, in many ways, an echo of the first Reagan presidency when the US car industry was threatened by imports from Japan.”
US trade balance and manufacturing jobs
Source: Buereau of Labour Statistics/ Haver Analytics. As of 30 Sept 2020
The chart above shows manufacturing jobs as well as US trade balances for goods and services over the last 25 years. The shaded areas show the periods of notable recessions which led to significant job losses in the manufacturing sector.
China’s membership of the World Trade Organisation (WTO) has also marked a steady decline in the sector since 2001, the analyst noted.
However, prior to the Covid-19 pandemic, the manufacturing sector had recovered roughly 1.5 million jobs since 2010 under the Obama and Trump administrations.
“The upshot is that a second Trump term would arguably continue to push for job creation in the manufacturing sector,” said Billmeier.
Billmeier (pictured) said a Biden presidency would be somewhat constrained by the policies of his predecessor, and as a Democratic candidate, turning away from manufacturing job creation would be historically unprecedented.
Furthermore, he explained that a ‘green’ president may find it hard as many manufacturing jobs are now related to oil & gas.
“We expect trade policy to become less aggressive, especially with respect to tariffs, but we could imagine that the focus on trading partners’ exchange rate interventions will remain broadly unchanged,” he said. 
The China and US trade war has been escalating throughout Trump’s presidency reaching new levels in 2020.
“Indeed, the relationship with China has clearly outgrown a simple trade spat and has been recognised as a more fundamental strategic rivalry, including with respect to global security issues,” said Billmeier
The Western Asset Management analyst noted that Trump would take the recent reduction in the bilateral goods trade deficit from 2 per cent to around 1.5 per cent of GDP, (the grey line in the chart above) as vindication of those tariffs and other policies toward China and would likely continue in its policy.
While a critical approach to China has become something of a bipartisan issue, he said he expects Biden to make more substantive efforts to build international consensus around its approach to the country.
The other bilateral relationship that requires Trump’s attention should he be re-elected is with the EU.
“As the US also runs a bilateral trade deficit – roughly $175bn per year – in goods with the EU, we can imagine his second administration paying a lot more attention to reducing that perceived imbalance,” said Billmeier.
“Conversely, we cannot imagine this being a priority under a Biden presidency, in particular in exchange for a share position versus China.”
Any trade deal that the UK would be hoping for will likely be postponed as domestic policy will require the immediate attention of the government. However, it will likely depend on the relationship between the UK and EU, particularly with regards to Northern Ireland.
Western Asset Management also sees clear distinctions between how the two contenders’ approach international organisations and treaties, noting that Trump would likely continue with an uncooperative policy towards them.
On the other hand, the analyst would expect Biden to re-join the Paris climate accord and seek an instant reversal on the World Health Organisation exit.
He finished: “Relatedly, we could expect a Biden administration to join COVAX, the quasi-global initiative aimed at providing countries around the world with equitable access to Covid-19 vaccines once they are licensed and approved.”