Whoever emerges as the victor of the 2020 US presidential election, foreign investors should prepare for a new era of protectionism. Both candidates promise intensified efforts to stimulate domestic manufacturing and bring supply chains home. The Covid-19 pandemic, which had 26 million Americans claiming unemployment benefits as of September 5 — many in jobs never to return — has made these promises even more urgent. 

But while the two candidates’ policies share some commonalities, they differ in approach. Republican party president Donald Trump’s slogan remains “America First”. Democratic party candidate Joe Biden’s foreign policy is built on “Leadership, cooperation, democracy”. 

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And while Trump’s consistent message is that the US is being treated unfairly by seemingly every foreign organisation and country, Mr Biden acknowledges that weaknesses in US competitiveness must be recognised and addressed through specific strategies he has laid out to “Build back better”. He has committed, within his first 100 days as president, to launch a review of key US international supply chains to identify vulnerabilities and security risks. “The goal here is not pure self-sufficiency, but broad-based resilience,” a campaign document states.

Common ground 

There are, however, common themes in both campaigns. 

Both the Biden and Trump strategies aim to shift the mindset of American manufacturers from producing abroad, especially in China, to producing at home. But they agree that a complete break with China is a fantasy. Mr Biden’s top China policy advisor, Tony Blinken, has described fully decoupling from China as unrealistic and counterproductive. “I don’t think it is a reasonable policy option at this point,” US trade representative Robert Lighthizer told a US House Committee.

Mr Biden's plan to restore the nation’s strength, like Mr Trump’s, is based on a “Buy American” foundation. It calls for a $400bn investment in additional federal procurement, with a requirement that companies that win contracts use US workers and commit to specific employee benefits. And it raises the domestic content required in federal procurement projects. 

In addition, Mr Biden proposes to invest $300bn over four years in research and development (R&D) in high-tech industries and breakthrough technologies. The aim, besides job creation, is to stay ahead of China in R&D, which could surpass the US this year. Companies that benefit from these funds will have to make their end-products in the US or reimburse the government, and will have to turn over a share of the royalties to the US Treasury. 

Like Mr Trump, Mr Biden will also pursue a get-tough policy on China’s perceived abusive trade practices. 

The Trump administration’s main strategy for confronting them was to impose substantial tariffs on many Chinese-made goods — a strategy Mr Lighthizer credited for the signing of a Phase 1 trade agreement with China this year. The “enforceable commitments” from China to buy at least $200bn more in US goods has, so far, not been achieved — and $370bn in tariffs on Chinese goods remain in place. 

The challenge posed by China is almost less about their strength and more about our own self-inflicted weaknesses

Tony Blinken

Multilateral pressure

Mr Biden has also promised to take aggressive trade enforcement actions against China. But, unlike President Trump, he favours a multilateral pressure campaign and coalition building that combines US market power with that of the EU and other countries — an approach the EU has long sought.

To combat China, Mr Biden believes it is necessary to restore the US to a position of strength. “The challenge posed by China is almost less about their strength and more about our own self-inflicted weaknesses,” Biden foreign policy advisor Tony Blinken has said. 

A paper co-authored by Ely Ratner, a key Biden advisor on China, says Washington will need a whole-government approach that coordinates national policy across multiple issue areas. “US policy-makers should begin by assessing what Washington can do to make America run faster and jump higher,” it states. 

Both Mr Trump and Mr Biden aim to keep US companies at home. Mr Trump recently offered tax credits to US firms that move factories out of China and threatened to terminate government contracts with firms that outsource work to China. Mr Biden wants a claw-back provision that forces companies moving jobs abroad to return any public investments and tax benefits. 

Mr Biden would also tax all foreign earnings of US companies located abroad. And he would impose a tax penalty on corporations that ship jobs overseas to sell products back to the US. However, US companies that establish plants abroad in order to be closer to consumers there would be exempt, says William Reinsch, an expert at the Center for Strategic and International Studies in Washington, DC.

Footing the bill

China is not the only victim of Trump’s tariffs. Indeed, his widespread use of tariffs on foreign goods has alienated many allies, aggravated industries and farmers, and hurt consumers. According to Mr Blinken, Mr Biden would use tariffs “when they’re needed, but backed by a strategy — a plan — to use it to succeed, not to fake toughness and to harm our own people”.

Kellie Meiman Hock, managing partner in the Washington office of McLarty Associates, which focuses on private sector diplomacy, agrees. “Tariffs need to take place in the context of meaningful discussions with China and in pursuit of actual fulfilment of their obligations on matters like intellectual property,” she says. 

Mr Biden can also be expected to maintain pressure for reform of the World Trade Organization (WTO). “But whatever he does will be within the framework of allied cooperation, and he will work within the framework of existing institutions like the WTO,” says Mr Reinsch. 

“One of the most concerning things about the Trump administration is the weakening of the WTO agreement on government procurement,” says Ms Meiman Hock. “That is really the rules of the road that enables foreign companies to compete in the US on a level playing field.”

The election could also affect the future of US free trade agreements (FTAs). Mr Biden has said he intends to invest in domestic infrastructure and workers before entering any new FTAs, and secure input from labour and environmental groups — a likely nod to former Democratic rival Bernie Sanders’ strong anti-FTA stance. 

If Mr Trump wins, Mr Lighthizer will continue FTA negotiations with Kenya, Japan, China, the UK and the EU. 

What would a Biden victory mean for world trade? “Less drama, less volatility, more certainty, fewer threats, less bluster and clearer policy,” says Mr Reinsch. The voters will decide.