Deglobalisation to continue whoever wins US election - Capital Economics
Global Economics

Deglobalisation to continue whoever wins US election

Global Economics Update
Written by Vicky Redwood

With the US election result likely to have limited near-term implications for world GDP, the main issue for the global economy is how it affects US trade policy. Joe Biden would take a less aggressive approach, but he would not prevent a further decoupling with China or the stalling of globalisation more generally.

  • With the US election result likely to have limited near-term implications for world GDP, the main issue for the global economy is how it affects US trade policy. Joe Biden would take a less aggressive approach, but he would not prevent a further decoupling with China or the stalling of globalisation more generally.
  • Elections rarely significantly alter the course of economies and we doubt that this time will be different. Indeed, what happens with the coronavirus will have a far bigger bearing on near-term growth. And we have explained in our US service why fiscal and monetary policy will remain loose under either presidential candidate. (All of our analysis of the US election can be found here.) So we doubt that the election will have a major impact on economic growth at the US or global level. A Democratic “clean sweep” might be more negative for US equities (see here), but there should be little impact on global financial markets.
  • Accordingly, the main interest from a global point of view is what the election result means for the US’s economic relationship with both China and the rest of the world. We have argued that the rift that has widened between China and the US was caused by China’s emergence as a geopolitical competitor to the US, rather than the personality of Donald Trump. (See here.) And the pandemic has only reinforced China’s emphasis on its state-led model focused on fostering domestic innovation. (See here.) So we doubt that a Biden win would simply draw a line under US/China frictions. Indeed, under either candidate, the “trade” war is likely to spread to new limits on market access and flows of technology (and possibly finance).
  • Nor would the election result affect the other fundamental factors that we have argued have caused globalisation in its current form to run its course, including the technological progress that is increasingly making it cheaper to produce domestically. (See our work on globalisation here.)
  • Nonetheless, Biden would probably take a different approach to dealing with the China threat. In particular, his emphasis would be on building a coalition of allies to push back against China. This could help to strengthen the US’s relationship with Europe in particular, and to breathe life back into multilateralism. In contrast, we would not rule out an attempt by Trump to pull the US out of the World Trade Organisation. Admittedly, Trump might be more likely to agree a quick Free Trade Agreement with the UK following the UK’s recent departure from the EU, but this would still need to get passed by Congress.
  • It is also more likely under Biden that frictions would remain limited to China (and remember that trade between the US and China accounts for only 3% of global trade – see Chart 1). In contrast, Trump in his second term could turn his sights on other countries. After all, the trade war has led to a big diversion of trade, with US deficits with other economies rising sharply. (See Chart 2.) These include the EU and some smaller Asian economies and might cause Trump to target, for example, the EU’s auto sector.
  • Finally, you could argue that downside risks to the global economy are slightly reduced under Biden, given that Trump is more of a wildcard. Although Trump’s first term has arguably been less eventful than many had feared, there is no guarantee that a second term would be the same.

Chart 1: Breakdown of World Goods Trade (%)

Chart 2: US Trade Position (12m Rolling Sum, $bn)

Source: Refinitiv

Source: Refinitiv


Vicky Redwood, Senior Economic Adviser, +44 (0)20 7808 4989, victoria.redwood@capitaleconomics.com

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