Back to the Future: why there is no normal to return to after the US election

Make no mistake about it, there will still be a trade war after the US election. The conflict, that has built over the past four years, is a strategic one fought through trade, technology and finance. Whatever happens on November 3^rd, the US will remain on a trade-war footing with China and place sustained pressure on its allies to cooperate.

For evidence, if any were needed, you need search no further than the US Export Import Bank’s (EXIM) annual conference in September this year. At that event, David Trulio, who is EXIM’s Senior Vice President for the programme, “China and transformational exports” said, “China challenges US power, influence and interests and is attempting to erode US propserity and security. Indeed, China’s global infrastructure investments and trade strategies reinforce its geopolitical aspirations.” The origins of the war are routed in the two different economic systems – China’s “extensive use of state driven protectionist policies and practices harm US companies and workers, distort global markets, and violate international norms.” In short, this is a strategic competition and US companies will be given the support by EXIM to compete, and win.

There is no going back from here, whatever we might want to believe. The real transformation to trade over the last few years has resulted in an existential weakening of international organisations like the World Trade Organisation, the World Health Organisation, the Paris Climate Accord and the United Nations. Globalisation is no longer seen as a force for growth, employment and economic development; instead, the two largest economies in the world are “decoupling” and actively restricting the cross-border transfer of knowledge, ideas and technology. Relationships between allies, particularly transatlantic ones, have become strained. Most importantly of all, the concept of trust has gone out of bilateral and multilateral trade: sanctions and commercial restrictions now add layers of complexity to international deals with “rogue” states like Iran and with “revisionist” states like China and Russia. Compliance functions in banks are on overtime and trade finance professionals in banks themselves feel like the front line in this trade and technological battle for global supremacy.

We can reasonably expect President Trump to continue on this path if he is re-elected. Since Covid-19 first became evident, he has personally blamed China for the virus that has ravaged the global economy; his campaign overtly uses China as the enemy over which an America, made great again, will prevail. His trade representative will re-configure the World Trade Organisation around US principles and, if he can’t, he will resort to the mercantilist, bilateral Free Trade Agreement “land-grab” that other countries and trading blocs have engaged in to further their own interests.

So what difference would a Biden presidency make? Given that his mantra through the campaign has been “economic security is national security” and has focused an equally ascerbic rhetoric against the threat posed by China into a “Made in America” mantra, one could legitimately say, “not much”. He has even argued that US policy so far has not been sufficiently tough on China. His plan is to “build back better” but this is very much focused on domestic priorities rather than trade policy ones. All-in-all, despite his generally pro free trade preferences, it seems unlikely that trade will be that far up his agenda in an election that anyway is about restoring the trust of the US voter in US government in the wake of the coronavirus pandemic.

However, if he is elected, Joe Biden has one fundamental challenge to address that is not related to Covid-19. He also needs to restore international faith in the role that the US takes globally. For non-US citizens, the careless abandon with which the institutions of multilateralism have been undermined, through tweets and through direct action, has combined with a burgeoning economic nationalism that many of us find troubling. Biden uses a milder rhetoric towards his allies, and appears to be more accommodating towards re-establishing strong trade relationships with the EU, and particularly Germany, for example. This will go some way towards redressing the balance.

One focus of restoring those relationships may well be around the environment. For Biden, tariffs are ineffective in a trade war. However, he does see them as a way of incentivising greener trade, and, as this is a policy focus of the European Union too, there is potential to “build back better” around the theme of sustainability. Similarly, the EU, Japan and the US under a Biden administration would all agree that the World Trade Organisation needs urgent reform, particularly around sustainable and digital trade. There will undoubtedly be a lot more potential alignment under a Biden administration than there has been for the last few years.

But before anyone starts to imagine that this will restore the world to the Obama, or even the Clinton, era, of cuddly capitalism think again. The US is in the middle of an existential power struggle with China. That power is defined on economic rather than military terms and so the weapons are economic ones too. Trade relations will be vital to US interests, but only if they can be formed on US terms if the current campaign narrative is an indicator of future strategy.  This will mean that any new agreements with the EU, or even the UK, will still have baked into them a US-centric  focus on national security, technology and cyber security, China, US jobs and US regulatory structures.

China has been a big theme in recent US elections – from currency wars in 2008 and 2012 to trade wars in 2016. In this election, the future of the US in a world where the balance of power is dictated to by economics appears to be at stake. Donald Trump has set this agenda. There is no normal to go back to.