WITH THE RECENT INAUGURATION OF PRESIDENT JOE BIDEN, MANY IN THE UNITED STATES AND OBSERVERS AROUND THE WORLD ARE EAGERLY AWAITING A “RETURN” OF ONE SORT OR ANOTHER.
For some it is a return to traditional partnerships and alliances that had been in place since the end of World War II. For others it is a return to commercial activity not beset by excessive tariffs, export controls, sanctions or national security reviews. And many long for a return to a multilateral approach to diplomatic and economic relations that prioritizes shared interests over confrontation and promotes predict-ability rather than uncertainty.
But can we expect such a “return” after so much has changed so fundamentally in the past four years? And if we can’t, what direction will a Biden presidency take — and what will that mean for global companies challenged by an expanding web of policies, laws and regulations?
THE TRUMP PRESIDENCY WAS NO ACCIDENT
The election of President Donald Trump was not a historical accident. Some have called it a reaction to a worldview that no longer made sense to a majority of the American public — one that had been forged in both the United States and else-where by a determination to promote global economic recovery after the 2008 financial crisis. In declaring that “America is open for business” in 2011, President Barack Obama encouraged foreign investment as a stimulant to a flagging U.S. economy, including from China. Efforts to forge both trans-Pacific and trans-Atlantic trade partnerships encouraged corporations around the world to capitalize on the increasingly global markets that were taking shape.
Despite the stated merits of this approach, candidate and then President Trump seized on the underlying fears, perceptions, and uncertainty that many in the U.S. had about the impact of globalization and the rise of peer competitors on their livelihoods and way of life. While others debated the nuances of various policy proposals, Trump sounded the alarm about the U.S. trade deficit with China, immigration, commercial and tax rules that benefited multi-national corporations over small businesses, allied nation “free-loaders” that took advantage of America’s security umbrella, and multilateral institions that did not serve U.S. interests. Upon assuming office, Trump took actions that – while debatable as to their beneficial impact — sought to protect certain business sectors without regard to the nation’s longstanding diplomatic or security ties. And when disputes arose, Trump chose economic levers to punish competitors and advantage U.S. companies — resulting in a patchwork of tariffs, sanctions, export controls and stronger trans-action review mechanisms that sent a distinct signal that America’s “open for business” placard had been taken down.
What direction will a Biden presidency take — and what will that mean for global companies challenged by an expanding web of policies, laws and regulations?
A SWIFT RETURN TO MULTILATERALISM? MAYBE, MAYBE NOT.
And while many of Trump’s actions were unilateral, they were not singular. Driven by similar concerns, the European Union, its member nations and China now have or are establishing their own mechanisms for the review of cross-border acquisitions and partnerships that may have a national security dimension. Digi-tal security has become a national priority. And the threat or imposition of retaliatory tariffs has become commonplace among friends and foes alike.
These trends have also prompted a realignment of interests and opportunities. Who would have imagined a trans-Pacific partnership with-out the United States but that might include China? Or, most recently, an EU-China investment agreement that both sides seemingly accelerated to strengthen their respective positions vis-à-vis the U.S.?
Given these evolutions over the past four years, it is difficult to conceive of a “return” to the previous state of affairs by President Biden or other world leaders. And while Biden himself has called for a return to multilateralism, his policy agenda does not immediately suggest an unequivocally multilateral approach.
Biden will be constrained by domestic interests from lifting tariffs and by a need to maintain a “strong” foreign policy from easing sanctions — at least in the short term.
A top priority is to strengthen the American economy. And how will he do this? In part by instituting “Buy American” incentives in the manufacturing, infrastructure and clean energy sectors, among others. He also seeks, in light of vulnerabilities exposed by COVID-19, to build more secure supply chains within U.S. borders, especially with regard to medical equipment, semiconductors and communications technology. And he has pledged not to enter any new trade agreements until the American economy has improved.
He wants to rebuild America’s traditional alliances. One way to begin this process would be to remove tariffs on European goods, or to terminate unilateral sanctions that impede a more multi-lateral approach to regional and global challenges. Yet Biden will be constrained by domestic interests from lifting tariffs and by a need to maintain a “strong” foreign policy from easing sanctions — at least in the short term.
Biden has called for a multilateral approach to China, in which the world’s democracies combine forces — and market share — to compel its compliance with inter-national norms. Yet with the imposition of new restrictions on China at the end of Trump’s term, and the domestic bipartisan support they have, building a consensus approach with allies will be a challenge. Some also note China’s efforts to position itself among regional trade partners, Belt & Road Initiative beneficiaries among developing nations, and even in Europe with the recent investment deal.
While Biden himself has called for a return to multilateralism, his policy agenda does not immediately suggest an unequivocally multilateral approach.
At the same time, Biden’s swift actions to rejoin the Paris climate accord and re-establish a U.S. role at the World Health Organization, among other measures, demonstrate a true desire to revive U.S. leadership in international affairs and portend well for future engagement. Having Democratic majorities in the House of Representatives and Senate will strengthen the new President’s hand in this regard, with Republican divisions over the future of their party giving him even more perceived leeway in the formulation and execution of policy. He likely has a narrow window out of the gate to “go big” under the banner of pandemic response and economic recovery, but as Biden gets further into his term he will need to sustain the support of mainstream Republicans for key elements of his agenda in order to ensure their approval and longevity beyond the 2022 mid-term and 2024 presidential elections. The number of Republicans — or more importantly their constituents — who are willing or able to cast aside President Trump’s ultra-divisive approach to governing and join in this endeavor remains to be seen.
So while many hope for renewed cooperation and predictability in international affairs, those dependent on global commerce will need smart strategies and nimble tactics to navigate the uncertain geopolitical and policy landscape ahead. While possibly less volatile than in recent years, it is certain to be as or more complex. And just as with its predecessor, every action by the new Biden Administration will likely provoke reactions — and global businesses will need to be ready for both. Despite the constraints on Biden’s policy options, tariffs and sanctions will be reviewed and reconsidered, promising trade initiatives will be pursued, and the intersection of competitiveness and national security will become increasingly relevant for all.
With our global — and now unified — team of experts in the United States, Europe, the Middle East and Asia, Finsbury Glover Hering is uniquely equipped to help companies predict, prepare and position themselves for the opportunities and challenges that lie ahead.