Personal vs institutional, bilateral “favouritism” vs multilateralism, mood vs process, bluster vs restraint, mercurial vs considered... Donald Trump’s international economic policy was a populist mix of harking back to “splendid isolation”, muscular 'my way or the highway' approach, and his 'art of the deal'. At its heart, though, it had a domestic focus. It was left to the bureaucracy to keep trade discussions going — distinct from Trump’s tweets.
As Joe Biden shapes to his trade policy, he faces a vastly changed world from what he left in 2016:
* Covid: “Rebuilding” the US economy (not just capital markets) will drive policy. A challenge bigger than the 'Great Depression' and the global financial crisis is exacerbated by accelerating technological changes making whole industries obsolete.
* China: It has become an adversary for global dominance, not an opportunity. The China story gets even more complex with the developing Russia-China “axis” in play.
* Protectionism and challenges to multilateralism: Trump’s 'America First' policy and success with Canada, Nafta, etc, and growing reservations about free trade make major shifts in trade policy a political hot-potato.
* Climate change back to the fore: Four years of Trump denials did not make climate change disappear. It will be an integral part of international trade discussions.
So what will be key elements of Biden’s trade policy?
A weaker dollar, driven by Covid response: Biden will seek a fresh stimulus package and invest in reviving infrastructure. Result will be higher government borrowing and fiscal deficits. This may lead to a “weak dollar” for the medium term. A weak dollar becomes even more viable given the US’ self-sufficiency in energy, and a push to boost exports.
Trade policy: Trump showed, with some success, the US markets’ power. Biden will need to tread a fine line between reviving multilateral trade discussions and not appearing dovish on 'America First'. We hope to see the US re-engage at the World Trade Organization (WTO). It is likely that Biden will push for quick-win bilateral trade treaties. The EU and India, among others, may be high priorities, a post-Brexit UK not so much.
China: Biden may temper the anti-China rhetoric, but he is unlikely to change the trend of trade relations. US businesses will be encouraged to diversify manufacturing away from China. There are likely to be greater controls on technology transfer. There is also likely to be renewed scrutiny of the cost structure of Chinese manufacturing. Assume pro-active responses to overt and covert Chinese measures that deny foreign companies a level playing field.
Immigration: Biden, like Barack Obama before him, realises that America’s economic strength gained from new ideas and talent from immigrants. He will build on the rich legacy of immigrant contribution to the National Aeronautics and Space Administration (Nasa) by liberalising visa issuances. This will not be carte blanche though – it will be focused on areas Biden and his team identify as future-important.
Climate: Environmental protection will be an integral part of US trade negotiations. Biden and “progressive” Democrats will push for a reward-punish approach to trade based on individual countries' approaches to the climate.
So where does this leave India?
Both Trump and Biden agree on India’s importance, so we are in a good place, with opportunities for a real partnership beyond sound-bites.
* GSP review: Swiftly seek a review of the withdrawal of Generalized System of Preferences (GSP) benefits.
* Be a “quick win” on trade for Biden: The new Potus will look for quick wins. Coupled with de-prioritisation of China, this is a generational opportunity for India to become the US’ main trade partner in the Indo-Pacific region for the next few decades. India, by possibly discarding impractical “legacy” rigidities in its approach to trade engagement can jump to the top of the line. In addition to flexibility in approach, India will need to ignore political “static” – be thick-skinned in letting commercial interests drive its trade engagement with the US.
* Visas and technology: It is likely that the H1B visa issue will be resolved quickly. India’s data richness can complement US technology strengths and a great partnership can be formed. It will be interesting to see how the US and India work on limiting the monopolistic trend in Big Tech.
* Climate change: PM Modi’s solar alliance and other environmental initiatives will resonate with the Biden administration. This opens opportunities for clean-energy-related manufacturing in India as well as cooperating in initiatives to protect the environment.
Biden’s trade policy will be institutional, predictable and based on a belief in free trade. Don’t hold your breath for immediate big changes – his first priority will be reviving and investing in the US economy. India, with its market potential, and as a complement to the US economy stands to gain if it plays its cards right.
Saket Misra is an international investment banker.
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