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US trade policy: the global impact of a Biden presidency

The election of a new president of the United States heralds the potential for a step change in trade stance for one of the world’s most powerful trading nations, and – pandemics notwithstanding – likely a greater degree of certainty for companies that engage in cross-border trade.

So, what is possible for international trade? Our experts share their thoughts on what Joe Biden’s presidency may bring.

A change in the wind for US trade

The combination of geopolitical uncertainty and rising trade costs as a result of the ongoing US-China economic battle has made it more difficult for companies to make mid- to long-term business and investment decisions, which has had a knock-on effect on their ability to trade. That unpredictability has been significantly compounded by the Covid-19 pandemic and, despite vaccine optimism buoying markets, some exporting companies could still face a long road to recovery.

But a change in leadership in the US in the form of President Joe Biden may help to alleviate some uncertainty in international trade policy and relations for companies – both those in the US and who trade with the US.

Clearly, reduced trade tensions will support increased trade flows, and help economies rebound following the pandemic.

Michael Gapen

Head of US Economics Research at Barclays

Gapen continues: “Companies will take comfort in a reduction in the threat of tariffs with trade partners – and not just with China, but also other nations that have large trade deficits with the US, such as Mexico and the European Union. The absence of contentious trade discussions where the threat of tariffs is real is a big deal for an economy that has been hit by the pandemic and needs to resurrect itself, as well as those who trade with it.”

A shift in policy

At the very start of President Joe Biden’s first term in office, some of his policy priorities are already clear.

He has outlined that he would not immediately remove tariffs on Chinese exports or alter the phase one US-China agreement, but that his focus will be to conduct a full review of the deal and consult with allies in Asia and Europe to develop a strategy. Biden has said his administration’s goal would be to pursue trade policies that prioritise addressing structural issues, including forced technology transfers, among others.

Trade and technology are going to be significant factors for negotiations between the two countries going forward.

Shawn Golhar

Head of Public Policy Research at Barclays

Biden has also said he will work to restore relations with long-time US partners, and recently nominated Antony Blinken as his secretary of state. Blinken, a fierce believer in the transatlantic alliance, has long purported that the US should work with its allies and within international treaties and organisations.

Blinken has previously described Europe as a “vital partner” and said that a Biden administration would seek to restore ties with the EU and cooperate on areas of common interest. With Biden himself more pro-EU than his predecessor, this could have ramifications for a post-Brexit Britain.

“Generally, we’re going to see less discussion of a bilateral trade deficit as a national security risk, but more about the importance of the transatlantic alliance and the United States-Mexico-Canada Agreement (USMCA) to push back against a resurgent Russia and a competitive China,” says Golhar.

He concedes, however, that the newly signed Regional Comprehensive Partnership Agreement (RCEP) concluded between China, the 10 ASEAN member states, Australia, New Zealand, Japan and South Korea does “complicate things a bit”.

“The US previously walked away from the Trans-Pacific Partnership (TPP) [which went on to become the CPTPP], only to now see the Chinese outline a broad regional economic deal. While RCEP may not have immediate economic implications, it is symbolic,” Golhar adds, noting that the Biden administration could consider a return to forging a US-Asia Pacific trade deal, albeit with some modifications and support from major US labour organisations.

The US Chamber of Commerce issued a statement on the signing of the RCEP, outlining its concerns that the US is being “left behind as economic integration accelerates across the Asia Pacific region” and calling on its leaders to adopt a more “strategic effort” to maintain a solid economic presence in the region.

Nationalism vs globalisation

Biden is a believer in multilateralism, with one of his campaign promises being to host a ‘global summit for democracy’, which he has said would “renew the spirit and shared purpose of the nations of the Free World”.

While a Biden presidency likely indicates a shift away from the protectionism that has characterised the country’s trade policy in recent years, Golhar argues that its legacy may live on: “It’s just going to morph into a new phase in the US and will be very difficult to challenge. But it does mean that some of these trade issues may not get politicised the way they have been.”

Winning support from US labour groups, who have long argued that the government has systematically traded away manufacturing industries and jobs, will likely be critical. Biden has said he will invest first in American workers and ensure that labour is at the table for every trade deal.

“Across the US, there are areas that have become incredibly impoverished, and it is easy to find a ‘bogeyman’ to blame. In this case it’s trade,” says Golhar. When the losses are so concentrated, and the gains of trade so dispersed, “it's very hard to argue to maintain the status quo”, he says.

A time for trade

“Companies have been faced with increased uncertainty and risk over the last 12 months. But, as Biden establishes himself, what we may start to see is more multilateral discussion, and a clearer path forward emerging,” says James Binns, Global Head of Trade and Working Capital at Barclays. “This is likely to improve the environment for global trade, and we may start to see global trade flows recovering and risk levels begin to stabilise.”

Indeed, an increase in global trade volumes is underway: a recent WTO Goods Trade Barometer, published in late November, reports a strong rebound in Q3, driven by a surge in export orders, but suggests that growth is likely to slow in Q4 as pent-up demand is exhausted and inventory restocking completed.

“Much of this recovery, certainly in the US and Europe, can be attributed to the increased demand for household goods, as societies have substituted away from services that put us at risk of virus infection,” says Gapen. This so-called “nesting effect” may, however, be reversed across certain sectors in early 2021 with a potential vaccine in play, as the consumption of services gradually picks up again.

“What was driving trade in 2020 is going to change this year: the US and Europe may have less import growth, for example, and we may have less of a concentration of trade flows coming out of Asia, driven by more services-oriented trade,” Gapen adds.

Whether or not the fundamental credit appetite required to help businesses recover from Covid-19 will be readily available remains to be seen. In the meantime, continued support for trade is vital.

“Now is an important time for trade finance,” says Binns. “The direct linkage which trade finance has to underlying flows of goods and services, will be a critical enabler of banks and governments being able to support economic recovery from Covid-19.”

If governments support trade finance, 2021 could be a watershed moment for properly structured trade and working capital solutions.

James Binns

Global Head of Trade and Working Capital at Barclays

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