In the final presidential debate between Donald Trump and Joe Biden, the then Democratic hopeful concluded with: “You know who I am, you know who he is. You know his character, you know my character.”
Much of Biden’s campaign trail and attraction ran on the fact that he was not Donald Trump. There is much truth to this.
However, in several key areas of domestic and foreign policy, Biden and Trump share more than one might expect. This is most evident with regards to the US-China trade war and ‘Made in America’ campaign. On the other hand, for matters relating to climate change, they diverge dramatically.
But what does this mean for international investors and why should Americans care about foreign direct investment (FDI)? Well, for one, the latest data shows it supports around 8.1 million jobs in the US, according to Statista.
International companies invest in almost every industry and state across the US, but are especially concentrated in the manufacturing sector, employing a whopping 20% of its workforce, according to Aaron Brickman, executive vice-president of the Global Business Alliance, a trade association representing the interests of foreign investors in the US.
What would Biden’s foreign policy be?
Biden is a political veteran of the old guard. A former head of the Senate Foreign Relations Committee and an internationally focused vice-president under Barack Obama, he is in many respects the polar opposite to Trump.
Reflecting this, Biden’s foreign policy rhetoric over the past 12 months is summarised by the slogan ‘Restoring American leadership’, a direct riposte to Trump’s isolationist and anti-globalist ‘America First’ platform.
The past four years have seen Trump dismantle US participation in international multilateral organisations, such as Unesco and the World Health Organisation (WHO), to name just a few.
Biden has made clear that his administration will halt the country’s exit from the WHO, and restore its place at the table of other global bodies. However, it remains unclear if he will heal matters with the World Trade Organisation, whose system of solving trade disputes has been undermined by Trump’s trade wars.
Similarly, it is uncertain if Biden will bring back to life some of Obama’s foreign policy legacies, such as the Trans-Pacific Partnership, a multilateral strategy aimed at countering Chinese influence in Asia. Trump ripped the treaty apart in 2017.
“The Trump administration has had a proclivity for creating mini new trade deals with individual countries,” says Dr Alexis Crow, who leads the geopolitical investing practice at PwC.
“It’s going to be interesting to see the extent to which a Biden team would use that bilateral architecture and develop on that, because some of those trade deals are far from comprehensive, insofar as [they leave] out things such as data and digital tax,” she adds.
On the other hand, it seems very likely that Biden will take a stronger position against Vladimir Putin, Jair Bolsanaro, Mohammed bin Salman and other populists-cum-strongmen that Trump cosied up to. In a similar vein, Trump’s alliance with Boris Johnson, Nigel Farage and the UK’s Brexit cohort is likely to come under attack, meaning a new dynamic for the ‘special relationship’.
Meanwhile, relations with the EU will be likely to thaw. “I think, certainly, you will see a healing of ties across the Atlantic Ocean in a Biden presidency with regards to trade. That might also make some institutional capital coming out of Europe feel more comfortable in the US – especially from Germany,” contends Crow.
It is important to note, however, that despite Trump’s hostility towards Brussels and Berlin since 2016, FDI from the EU to the US continued to grow strongly, according to data from Statista.
More of the same in the China relationship
Biden’s stance on China is, of course, of tremendous interest for market watchers. Much has been written on the subject and the consensus is that there is cross-party support to ‘stay tough on China’.
“Deteriorated bilateral relations will continue to exist between both sides. Even with Biden, there will be a consistency in terms of tackling technology competition and the trade imbalance,” says Dr Yu Jie, a senior research fellow on China at UK-based think tank Chatham House.
“What will be different is that the Biden administration will take a more diplomatic and professional tone when dealing with China. It will be less rhetorical and [inflammatory], but I think the substance will remain the same,” she adds.
Trump has indeed favoured the use of tariffs, and with wild abandon. Crow thinks there is likely to be an unwinding of that under Biden. This is not to say that the Democrats are utterly opposed to using tariffs, but that they may use them more sparingly.
“With regards to the Committee on Foreign Investment in the United States and FDI screening, I think you will potentially continue to see a resistance or a complete wholesale blocking of any Chinese investment into sensitive sectors, such as tech. But we may see an easing of Chinese investment into non-sensitive sectors such as consumer retail,” adds Crow.
Since lockdown began, the US has stepped up its foreign investment screening mechanisms against China, as have dozens of other countries.
Biden’s domestic policy
At times, a quick scroll through Biden’s campaign website seemed more like a stroll through Trump territory.
This is particularly true when talking about manufacturing, with one part of the website titled: “The Biden plan to ensure the future is made in all of America by all of America’s workers.” It is not short, but detailed and comprehensive.
The ‘Made in America’ slogan continues to gain support in the US, meaning Biden’s hands are somewhat tied, says Dr Sultan Salem from the department of economics at the UK’s University of Birmingham.
Therefore, even if the Democrats take over the Senate (which is heading for a run-off), having retained the House of Representatives and winning the presidency, it is unclear what kind of unity there will be between more ‘progressives’ in the party and those that back the Obama-era policies that were so good for FDI, contends Brickman.
‘Progressives’ are inclined towards the Buy American, Make American space, so there is sure to be a vigorous discussion in terms of economic protectionism, he adds.
On the other hand, there may be a difference between Biden’s seemingly supportive rhetoric and what actually develops as policy, points out Crow.
A key part of the ‘Made in America’ ethos, championed by Trump, is to ‘bring jobs home’ by reshoring American businesses, in manufacturing and beyond. Covid-19, which is increasing the regionalisation of supply chains, has added fuel to this fire.
Forces larger than the presidency
Trump’s ‘America First’ policies have not stopped US manufacturers from offshoring, according to data from Bloomberg.
“I think it’s disingenuous when folks think that there can be radical changes from one year or even two years, regardless of party. The Trump administration has made reshoring a priority. But it takes time, just as FDI attraction takes time – and data is 18 months behind,” says Brickman.
Moreover, specific foreign investment policy will be overshadowed by larger issues, such as the pandemic response, unless FDI is made part of the recovery programme, he adds.
Dennis J Donovan, principal at Wadley Donovan Gutshaw Consulting, takes these arguments much further. “Irrespective of Democratic or Republican administrations, there has not been a dramatic shift in terms of FDI in the US for more decades than I can count. It has always stayed strong and stable,” he says.
“The only time it would change is if you had an outlier with radical, prescriptive policies relating to regulation, tariffs and corporate taxes. We’ve never had that. Economic fundamentals are more important than policies. Companies need to be in the US,” he adds.
With his tariffs, Trump offers a small taste of such an ‘outlier’. And yet, despite these and his other anti-globalist policies, Trump, as president, has managed to maintain huge amounts of foreign investment to the US, not least due to the sheer weight of the American economy.
While the US has not had a ‘radical’ president, presidential policies have an impact on business. Indeed, tax codes, the pandemic response and tech regulation are weighing heavily on US executives’ minds, according to a recent survey by PwC.
“Biden’s tax increases to offset the costs of various proposals, such as expanded healthcare coverage and energy transformation, are on the minds of executives. However, rising US debt is also a source of uncertainty. A majority of executives agree that business tax rates will rise to pay for pandemic relief, regardless of which party controls Congress,” says PwC’s report.
Under a Biden presidency, Donovan expects more workplace and labour regulation, which may increase overall payroll costs and have a somewhat dampening effect on business. “While that will be a nuisance, and not welcome, I don’t think it’ll be enough to present a formidable barrier to FDI,” he says.
Another policy area that Biden will impact relates to green energy. Trump is pursuing rollbacks of nearly 100 environmental rules, according to research from the New York Times. Biden is likely to reinstate these, beginning with the Paris climate change accords, since he has committed to make the US carbon-neutral by 2050.
“The biggest impact of Biden on FDI will be to the environment. A lot of capital has been waiting in the wings, in terms of infrastructure investing. If we see a large-scale, stimulus-style infrastructure spending bill, then you would continue to see a lot more foreign investment,” says Crow.
“Pools of green capital have felt they were in geopolitically risky water with regard to the Trump administration and its policies toward energy, specifically things such as the solar tariffs and methane standards,” she adds.
In short, presidents count. While a Biden win may not dramatically alter the flow of investment to the US’s enormous and all-important market, he will be good news for environmental foreign investors, and more importantly, the planet.