By shifting away from the nationalistic policies of the Trump administration — during which international stocks underperformed US equites by 44%1 — the Biden-Harris administration is likely to usher in a more global agenda with respect to trade, diplomacy, and climate policy.
Unlike broader policy proposals, such as tax increases and a multi-trillion-dollar infrastructure spending plan that both depend on Congress to enact, the new administration can use executive orders and re-engage with international organizations to reshape trade and climate policies. Together with improving economic fundamentals and ongoing secular trends, these policy pivots on trade and the environment could jump-start investors’ interest in Asian emerging market equities and potentially amplify the growth trajectory of clean power and clean technology companies.
Trade policy tailwinds and improving fundamentals in Asia
From negotiating trade deals to regulating intellectual property, competition will always define the US-China relationship. However, Biden’s more diplomatic and partnership approach — a reprieve from the Trump administration’s harsh rhetoric and punitive tariffs — is likely to make trade policy less confrontational and more predictable.
This shift in tone and policy may lay the foundation to restore investor confidence in China and other Asian countries that have been negatively impacted by the trade tensions over the past three years. As shown below, while both markets have trailed US equities since the onset of the Trump administration’s trade war — which intensified in March 2018 with 25% tariffs on steel imports and 10% tariffs on aluminum imports2 — sentiment has shifted recently, coinciding with Biden’s improving polling numbers and subsequent victory. Yet even with this recent rally, Chinese equities are still down 12% relative to US equities since the end of 20173 — an indication of the potential upside of a “back-to-even” rally if trade tensions thaw and the tariffs are reduced/removed in favor a more cooperative trade agreement.