Trump and Biden share in both their tough stance on China and a desire to please the markets. Yet going forward, Beijing’s boost in foreign access to its capital markets may mean that the President, regardless of the election, will find these two goals incompatible.
By Tom Jankowski
At the time of writing, while Joe Biden and Donald Trump compete for the White House in the industrial midwest, China is continually reaping the benefits of managing the novel Coronavirus relatively swiftly compared to the remainder of the world. In its latest effort to modernize its economy, Beijing announced a set of laws that will liberalize its booming financial sector in order to allow international investors to trade on its capital and commodities markets. These changes include greater access to onshore futures markets: a tool employed in stock hedging.
This move is a logical progression in a series of attempts to draw international investors to the markets of the world’s fastest-growing economy. It also marks the development of a relationship between Wall Street and Beijing as several major American institutions are setting up shop in various hubs around the East Asian nation.
This connection between the two markets develops in an environment wherein the US-China diplomatic relationship is at a low point. The decline began with President Trump waging war on Chinese imports and escalated with his rhetoric regarding the nation’s involvement in the initial outbreak of the pandemic. Over the past four years, the impact of the trade war especially has been felt by the stock market with the New York Federal Reserve estimating it to have lowered market capitalization of listed companies by $1.7tn (equivalent to a decline six percent of the S&P 500).
The forging of a bond between Wall Street and Beijing, however, will likely alter the White House’s stance on China relations no matter the result of the election. Joe Biden, despite being labeled “working man Joe” and proclaiming that he prioritizes Main Street, has close ties to and is backed by leading figures in the financial markets after having received over $75 million from Wall Street donors. Historically Biden has claimed that the trade deficit and intellectual poverty theft that China is allegedly guilty of is a major issue he will fix when elected. However, if Biden will take it upon his administration to ensure smooth growth in the markets he will inevitably be forced to loosen his stance on China.
President Trump shares Biden’s view on China and has made it a major part of his presidency to reduce the trade deficit between the two nations. He is also, however, a believer in the markets being an indicator of the nation’s economic condition. As part of his reelection bid he has on numerous occasions cited the swift recovery of the market after the initial economic shock in March as a sign that he’s the man to lead America to recovery. With the softening of banking regulations in Beijing, however, his ideologies may become conflicting as in order to maintain a healthy American equities market, Beijing may also have to prosper. That means the trade war with China will have to subside to a certain degree.
The candidates are at a crossroads. Their shared desire to protect domestic industries is now, more than ever, at great odds with propelling growth in the markets. Regardless of the result, however, the winner of these elections will have an arduous task ahead of him that may inflict an even greater class divide than already present in America. □
- Image source
- Hale, T., & Lockett, H. (2020, November 01). China boosts foreign access to huge onshore capital markets. Retrieved November 05, 2020, from https://www.ft.com/content/a5392f07-9deb-4573-beb1-88a946f00df5
- Plender, J. (2020, November 02). Chinese economy outstrips US despite Beijing bashing. Retrieved November 05, 2020, from https://www.ft.com/content/d2f98c99-097c-4f2e-a6d7-203acc8d00fc
- Tisdall, S. (2020, October 25). From climate to China, how Joe Biden is plotting America’s restoration. Retrieved November 05, 2020, from https://www.theguardian.com/us-news/2020/oct/25/from-climate-to-china-how-joe-biden-is-plotting-americas-restoration