Biden’s US foreign policy would be positive for Emerging Markets
Biden could be a break from Trump’s style but not a restoration of Obama given post-2008 changes in big tech, China, GCC, oil and populism
Four Biden versus Trump foreign policy contrasts — multilateralism, trade, Iran, climate: all would be positive shifts for emerging market investors.
There appears to be very little difference between Biden, Trump and the US Congress on the description of China as a long-term geopolitical rival, the view of Iran, North Korea and Russia as security threats, the sanctity of the security of Israel, and the maintenance of US global military supremacy.
However, on the basis of his public comments, eg in the March-April 2020 edition of Foreign Affairs, from which we highlight quotes below, we identify four clear differences between Biden and Trump on foreign policy that would materially affect risks associated with emerging markets:
- Multilateralism;
- Trade;
- Iran; and
- Climate.
“The United States does need to get tough with China. If China has its way, it will keep robbing the United States and American companies of their technology and intellectual property. It will also keep using subsidies to give its state-owned enterprises an unfair advantage — and a leg up on dominating the technologies and industries of the future.”
Multilateralism
Although Biden’s assessment of potential threats is similar to Trump’s, the method for his proffered response in every case is based on multilateralism, building the broadest coalition of allies and using existing international institutions, as opposed to Trump’s unilateralism. This approach likely leads to more predictability in US foreign policy and more negotiation in advance of those changes. To the degree that investors react most to unpredictable geopolitical news as opposed to bad geopolitical news, this might reduce the perception of risk in emerging markets. The challenge for Biden, or any future president after Trump, is that the credibility of any US signature on a long-term multilateral agreement has been damaged and may take a long time to rebuild.
“On its own, the United States represents about a quarter of global GDP. When we join together with fellow democracies, our strength more than doubles. China can’t afford to ignore more than half the global economy. That gives us substantial leverage to shape the rules of the road on everything from the environment to labor, trade, technology, and transparency, so they continue to reflect democratic interests and values.”
“To counter Russian aggression, we must keep the [NATO] alliance’s military capabilities sharp while also expanding its capacity to take on nontraditional threats, such as weaponized corruption, disinformation, and cyber theft.”
Trade
Biden has made clear his opposition to the US-China trade war and the ultimately self-defeating nature of tariff escalations. The elimination of unilateral tariffs on China would clearly benefit trade volumes across the China-connected Asian supply chain (eg Malaysia, the Philippines, Vietnam). Furthermore, the multilateral response he espouses includes re-engagement in the Trans-Pacific Partnership (TPP), which should be positive, albeit in the very long term, for likes of Chile, Malaysia, Mexico, Peru, Singapore and Vietnam (less so for those outside TPP, such as Bangladesh, Egypt, India and Pakistan).
“More than 95 percent of the world’s population lives beyond our borders — we want to tap those markets. We need to be able to build the very best in the United States and sell the very best around the world. That means taking down trade barriers that penalize Americans and resisting a dangerous global slide toward protectionism.”
Iran
Biden would attempt to resuscitate the Iran nuclear deal framework. Our view is that there are limits to hot military action with Iran (ie a full-blown war is unlikely under any US administration) and that, if Iran is bound by the nuclear deal and the potential to re-engage economically with the global economy, then the security risks of the broader Middle East region substantially reduce. The chastening experience of Saudi in both its Yemen war and in the precision attacks on Aramco assets and the destruction of the Iranian economy wrought by another bout of sanctions make both more likely to play their part in lowering those tensions under a new deal.
“Tehran must return to strict compliance with the deal. If it does so, I would rejoin the agreement and use our renewed commitment to diplomacy to work with our allies to strengthen and extend it, while more effectively pushing back against Iran’s other destabilizing activities.”
Climate
The Covid-19 crisis has laid bare the consequences of a lack of global coordination. In some respects, the climate crisis is another iteration of this. Amid the international recriminations currently underway as to how the virus originated and spread, it appears naive to expect a path to global coordination re-opening — and that implies higher long-term risk for all assets. Yet the growth of professional investment mandates that filter out the most egregious polluters suggests that there is consumer demand to slow down climate change. In that sense, US foreign policy that supports this agenda should be positive for emerging (and developed) markets.
“I will rejoin the Paris climate agreement on day one of a Biden administration and then convene a summit of the world’s major carbon emitters, rallying nations to raise their ambitions and push progress further and faster.”
This report has been summarised for Medium. To read the full report as featured on tellimer.com, click here.
