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The geopolitical implications of a Joe Biden Presidency

The Oval Office will probably have a new occupant early next year – and this means US foreign policy will change. What are the geopolitical implications of Joe Biden’s victory in the presidential election?

retro compass, globe, maps and books

by
Charles Stanley

in Features

30.11.2020

The anticipated change of US Presidency – subject to court actions – will change US foreign policy. Part of re-entering the international consensus could be more use of US forces in smaller conflicts, as Presidents Clinton, Bush and Obama did, especially in the Middle East.

Donald Trump decided to make the US self-sufficient in oil and gas, tried to get all the troops home from various Middle Eastern countries, and followed a diplomatic strategy based on strong support for Israel and Saudi Arabia. He gradually, over time, created more rapprochement between Saudi and its allies with Israel, defining Iran as the rogue state they needed jointly to contain.

This policy put him at odds with some in the State Department and the Pentagon, who wanted more military involvement in the Middle East. Joe Biden wishes to re-enter the difficult world of negotiating with Iran with knock-on effects to the US allies in the anti-Iran alliance.

Mr Trump, however, led a new consensus amongst his departments and most of his allies when it came to opening up the new front of a trade and technology war with China. He helped alert the US establishment to the way it had fallen asleep on its watch over Beijing. Using the freedoms allowed it under World Trade Organisation (WTO) membership – and easy access to the other world bodies – China had systematically strengthened its position by increasing its industrial might, acquiring a dominant position in rare earths and batteries, whilst developing its digital capabilities.

China has been rising

Under cover of the Belt and Road initiative, the Made in China policy gave the country enduring strength from domestic self-reliance. President Trump decided to call time on easy access of China to US technology intellectual property – and started belatedly to repair the US position in rare earths, 5G and other crucial areas.

Mr Biden showed as a candidate he is no lover of China either, and wishes to extend the dispute with China more fully into issues of its human rights record in West China – with the Uighurs – and in Hong Kong, as well as the technology matters that the Republicans had highlighted. China is more sensitive to attacks on its human rights record than to trade disputes.

It is clear now to most observers that the next few years will see a cold war, or technology struggle, between the two superpowers, as the US sees a serious challenge to its global pre-eminence – and is increasingly able to mobilise its western allies around this cause. The US also must accept that more traditional sinews of war than digital and cyber excellence have also slipped.

China produces more than half the world's steel, with the US at just 5% and Germany, the largest European producer, at 2%. At the height of the cold war, the US produced just under a quarter of the world's steel and the USSR around one fifth. The US is closer to Saudi than China, which helps as Saudi is the world's dominant producer of aluminium – with 55% of world output to the US's 2%.

Mr Biden has called for state purchasing to favour US domestic production more – and backs a policy of aggressive trade enforcement against China. Whilst the US is preoccupied with political arguments over who won the Presidential election, and with preparations for a likely change of command, China has busied herself with increasing her grip on Hong Kong and the use of high tariffs against Australia as Beijing widens the rift between the two countries. China’s hostility is likely to strengthen the defensive alliance between Japan, Australia and the US in the region around the China seas.

A shift in focus

Next year is likely to see more moves worldwide towards national champions, home priority, more tariffs and non-tariff barriers to trade. The market for company assets is likely to be better policed as the West increases its guard.

After years of the West taking its technical supremacy for granted, it is now in a technological fight to keep up. After years of relying on the cheapest global source for products – and thinking that the world is relaxed enough to be dependent on far-away places including China for crucial supplies – the West is now examining its core capabilities. It is recognising that it is short of some of the main items of need should it ever find itself in a large armed conflict and now wants to remedy some of these holes in its defence.

Modern wars demand technical mastery and are to some extent based around cyberattacks and digital wars. They can also spill over into needing control on the ground using conventional weapons, as well as drones and computers. This still needs basics such as steel, and skills at making ships, planes and guns. Great powers win big wars by having superior abilities to manufacture at great scale from safe resources, as well as from having technological mastery. China has been quietly building a military-industrial complex capable of putting the largest forces the world has ever seen into places that will give it diplomatic leverage.

What significance does this have for markets?

It means governments will need to skew their efforts with strategic power in mind, favouring key sectors for privileged access to capital and talent. It means a further retreat from globalisation. It means a split world, with a US-led alliance and market system, and a China-led one – probably assisted by a wily and sometimes reluctant Russia.

It will add to the misallocation of capital that current heavy government intervention is already bringing about – and will reinforce moves to the state regulating and taxing business more. Investors will both benefit from US state support for strategic businesses and have to accept more regulation as the price.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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