- Biden victory could bring profound changes to US policies toward China and Iran.
- Trump administration withdrew from the JCPOA deal with Iran in 2018.
- US-China relationship has foundered on the Covid pandemic despite the trade deal.
- Biden has promised to reinstate the JCPOA Iran deal and lift sanctions.
- Markets not likely to focus on US election until September.
The election of Donald Trump four years ago not only overturned the Iranian policy of his predecessor Barack Obama but upended the long settled American tolerance for one-sided Chinese trade and industrial practices.
Mr. Trump had campaigned on both policy changes, calling the Iranian nuclear pact, “the worst deal ever negotiated” and during the 2016 contest accusing the Chinese of unfair and illegal behavior in its treatment of foreign investment and trade.
Perhaps the biggest surprise for the Democratic and Republican establishments in Washington, aside from the election itself, was that President Trump kept his word. His administration withdrew from the Iranian agreement, the ungainly named Joint Comprehensive Plan of Action (JCPOA), in 2018 and began a two-year tariff war with China that resulted in the January 2020 phase one trade deal.
The JCPOA terms had restricted but not ended the Iranian ability to develop a nuclear arsenal in exchange for lifting economic and financial sanctions on the Tehran regime and a surreptitious $1.7 billion cash payment by the Obama administration. Left untouched by the agreement were the Revolutionary Guards missile and other weapons programs.
Negotiated by the so-named P5+1 group, the five permanent members of the UN Security Council, the United States, the United Kingdom, Russia, France and China plus Germany and the European Union the pact was treated by the Obama administration as an executive agreement and not submitted for treaty approval in the US Senate, where its passage was highly uncertain.
The withdrawal by the United States was greeted with dismay and almost universal disapproval in Western Europe and among the other signatories. The terms of the deal had permitted European and American companies to again pursue investment and contracts in Iran that had been forbidden by the original strict Obama administration sanctions and many had lined up to do so.
Under the new “maximum pressure” Iran policy the US instituted very effective financial sanctions that forced companies to choose between doing business in the United States or with Tehran. For most international firms that was not a choice and they abandoned their prospective business in Iran.
The sanctions have hurt Iran severely denying it the capital and investment needed to revive its economy but they have not changed the political policies of the regime which used the Obama cash payment to fund its militias in Syria, Lebanon and elsewhere.
Biden campaign and Iran
Biden has said that under his administration the US would return to the terms of the JCPOA if Iran did.
“If Iran comes back into compliance with the deal then yes, we would do the same thing, but we would use that as a platform to try to build a stronger longer deal working with our partners,” he said in an interview. He has also offered to ease the sanctions as a humanitarian gesture during the pandemic though Tehran rejected an American offer of medical aid from the Trump administration two months ago.
The compliance terms of the JCPOA deal which permitted only limited inspections and prohibited visits to many military sites are largely an esoteric intelligence concern in the United States and unlikely to make much of an election issue for either campaign.
But the forty years of conflict between the two countries and Iran’s well-known support of terrorism in the Middle East, her avowals to destroy Israel and America and her backing of militias responsible for the deaths of many US soldiers in the Iraq War make Tehran an unsympathetic recipient of a Biden overture.
The American killing of Qasem Soleimani, the commander of the Quds Force without appreciable Iranian retaliation, to general approval in the US, highlighted the aggressive approach of the Trump administration and the relative weakness of the Iranian rulers. A recent series of explosions and bombings at Iranian nuclear and military sites of unknown origin and responsibility has further damaged Tehran’s reputation for military and intelligence competence.
Iranian and European approval
Any change to the current US Iranian policy advocated by the Biden campaign will by definition be favorable to Tehran and a retreat from the Trump administration’s strict approach.
The Iranian rulers are too astute to state the obvious but the only logical conclusion is that Trump’s defeat would be in their interest. Many European leaders and corporate heads would also be happy with a Trump loss, expecting that Biden would shortly reinvent the Obama era policy of favoring Tehran over Israel, and providing commercial access to the Iranian market.
Tehran and the US election
With the long history of enmity between Tehran and Washington, the strong US public support for Israel and wide public perception of Iran as a US foe it is difficult to see what electoral advantage Biden will obtain from proposing even the mildest relaxation of sanctions on Iran.
The Democratic activist base and large parts of the party are reflexively anti-Trump and any policy that his administration supports is automatically opposed. But for the undecided and independent voters that the Biden campaign needs a policy favoring Tehran is a doubtful way to win adherents.
The trade war with China begun and concluded by the Trump administration was the first time an American administration, Democratic or Republican, had denied the prime tenet of the post-war belief that globalization always delivered benefits to both sides of a trading relationship.
Mr. Trump campaigned on the idea that the hollowing of the US manufacturing base from sending factory production and jobs to China and overseas was both morally wrong and economically inept. It was perhaps the single most important reason he won the old industrial states of Pennsylvania, Michigan, Ohio, and Wisconsin and the election.
Origin of the China trade system
American and Western trade policy toward China was founded in the analysis that bringing the large and militarily powerful but economically weak Communist country into the world trading system would moderate her behavior and eventually provide a stable market partner for the developed industrial nations. The trade relationship that benefited the mainland began when China was an impoverished, economically backward country 35 years ago was essentially unchanged when Beijing had grown into the world’s second largest economy and a manufacturing and supply-chain powerhouse.
Through years of complaints from Western companies about Chinese theft of industrial secrets and intellectual property and promises for improvement negotiated by Republican and Democratic administrations with Beijing very little had changed. China always found ways to keep her advantage and the globalist beliefs of both American political parties prevented them from rocking the trade boat sufficiently to change its direction.
Trump’s origin outside of the Washington consensus was never more apparent than when he did what no other US President or world leader had been willing to do, and ordered tariffs on Chinese imports. There was, he concluded, no way to get China to change her behavior other than economic force.
The resulting two-year trade war was costly to both countries, but the trade deal finally signed in January of this year seemed to offer a new relationship and was a victory for the Trump administration’s high risk strategy.
That potential was derailed by the Covid pandemic and the charges and counter charges over origin and responsibility for the disease. In President Trump’s words, “The relationship has been severely damaged.”
Despite the mutual blame and distaste over the pandemic the essential nature of the trade relationship is apparent because neither Washington nor Beijing has even hinted at abrogating the deal as punishment for the other's alleged faults.
Biden and the Washington consensus
Joe Biden has been in Washington as a Senator for Delaware and vice president for almost 50 years. He was first elected to the upper chamber in 1973 and has not been out of office since. There are few national figures with deeper roots in the political establishment, Democratic and Republican, that was challenged and then defeated by Trump’s 2016 candidacy, than Joe Biden.
In the first 16 years of this century through the two Republican terms of George Bush and then two Democratic administrations of Barack Obama as China grew to world economic dominance second only to the United States, there was no effective counter to her predatory trade and investment policies because both presidents and their parties were rhetorically wedded to the primacy of free trade, even if the mainland’s practices belied its most basic tenets.
The American workers whose jobs had been sent overseas were assumed by the Democrats to be loyal and by the Republicans to be unreachable until Trump proved them wrong.
A Biden administration will return that establishment Washington trade consensus to power. Its record with China is one of accommodation and weakness. Like the Iranians, the Chinese are far too sensible to make their wishes known, but they must be praying for a Biden victory.
In judging the preferences of the Chinese and Iranian regimes its is useful to consider the question they will ask. Which prospective administration is likely to offer different and less aggressive policies?
There are three things to keep in mind. First, the Biden campaign is anti-Trump, it has no other rationale. Biden came in nearly last in all the Democratic primaries, he was manifestly not the choice of the Democratic base but of the Democratic establishment. Second, Biden is essentially a figurehead, literally because he represents the professional politicians who gave him the nomination and figuratively because his capacity to govern is diminished and diminishing. Those party rulers care far more about domestic concerns than overseas efforts and will buy foreign peace to concentrate on their US agenda. Finally, the Democratic base is fanatically anti-Trump the pressure from them and in the streets to reverse all of the works of Donald Trump will be irresistible.
China and Iran can only smile on the current Biden polling lead and hope it is real.
Please examine our other 2020 US campaign pieces:
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.