Biden and Xi, new Trade War or Raising the Peace Flag

The priorities of the new administration and financial markets

By: Ahura Chalki

It is over the longest presidential rally in the world and probably the most unusual one as well. Apart from any criticism and protest to the Election system by itself or the voting process, what is important is to see the reality and it says Biden won by more than 300 electoral votes.

On the other hand, with all the shortcomings that Trump’s administration had, it’s prepared a golden opportunity for Biden in many aspects, especially in the foreign policy of the United States and international treaties. However, for sure the first priority of this administration will be domestic issues, and firstly COVID’s health and Economic crisis.

Health and Economic Crisis!

No matter who is going to lead the government, currently the first priority is to get out of this crisis, get people back to their jobs, and solve the financial issues. Since the house and W.H are leading with Democrats and they are so close to being equal (48 vs 50) in Sena, a bigger stimulates package is muck likely to be approved by end of next January or early in February, which will push the stock markets higher, and bring the USD a bit deeper to the next support areas around 90.00. On the other hand, republican Sena in January could be returning to the democrats, which if happen, the composition of how markets grow will vary, mostly Green companies and Silicon Valley-based business will get much advance on that. And if Republicans can keep their seats, it will be the best combination for the Stock market, as the lack of uniformity of power leads to the growth of different ideas and markets.

China is a national issue!

Disagreement with China in many aspects is not something that can change the policy that much for different administrations, however, how to negotiate and reach an agreement can be changed.

When it comes to foreign policy, it is the area that Biden’s administration can use the advantage of the extremism of the current government. Trump’s administration has created many bargaining opportunities with its extremists against China, the EU, and even some other international treaties like the Paris agreement, the Conditions in NATO, and the Iran deal. However, there is no doubt that China is the first priority for the next administration, especially after the latest RCEP treaty, which leading by the Chinese.

On the other hand, increasing Russian and Chinese influence in the Middle East, especially in the past 4 years, has caused a great deal of criticism in the United States, especially among Democrats. All these together will hold the pressure on the next administration as well, to take a step against China. Democrats are much closer to the EU, so it is likely to see more cooperation between them and the UK in their new economic life apart from the EU. These changes will cause some tensions in the short and middle term, however in the longer-term, the world will need that and the balance after the current disbalancing, will help the markets in the longer term. The emergence of new powers may be challenging at first, but positive in the long run.

In the case of China, since none of them can put too much pressure on another, two scenarios are more likely.

First is to rich a general agreement between them, which will lift the Shanghai and New York Stock Exchange, and the long-term monopoly of US companies will divide between these two countries.

And in the second scenario, they will have limited agreement, like what they called “Phase 1” in the Trump administration, and will search separately for new business partners, as China reached the RCEP while the US was mostly about selling the military equipment and short term cooperation with Arabic countries around the Persian Gulf, while was trying to have another free trade agreement with New UK after Brexit. In this case, cash flow will be distributed in various markets and the growth rate of known indices will be slower.

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