Without a general foreign policy consensus, in two wars and a significant China controversy, the two candidates could set America on very different paths with enormous consequences for the country and the world.
In 2020, the two US presidential candidates, Donald Trump and Joe Biden, generally shared a common worldview. It was marked by a confrontational approach to China, indifference or neglect toward Europe, confidence in the then-uneasy yet seemingly stable settlement of the Middle East, and great interest in the development of Asia.
The wars in Ukraine in 2022 and Gaza in 2023 took investors, markets, and policymakers by surprise. For the first time in decades, the two candidates, Trump and Kamala Harris, may not share a common approach to foreign policy. From 1945 to 1991, Democrats and Republicans were united on the anti-Soviet front and basically divided only on tactics. The same held true after the Cold War until 2022, with both parties committed to globalization but only divided on details and industries.
Unlike any time in the past, at the onset of Cold War 2, the USA may be approaching an existential conflict abroad, and the two presidential candidates have different perspectives on the highly volatile international situation. Without delving into the details of the various approaches, the main differences are about the level of US support for Ukraine or Israel; whether to back or oppose the strengthening of the EU; establish or not an Asian NATO (as Japan suggested), and deepening Asian regional cooperation. Any of these choices will set the ongoing Cold War on different tracks, which will, in turn, impact markets and industries worldwide.
Larry Fink, CEO of Blackrock, the world’s largest asset manager, reportedly minimized the market impact of the elections, saying that the result “didn’t really matter.” I beg to differ. The right or wrong steps of the next US president in the global scenario will matter greatly for the world and, consequently, for Wall Street, both in the short and long term.
For instance, two significant events occurred recently, both ignored by American attention fixed solely on its elections. Both must be addressed due to their massive short and long-term impact. One involves North Korea sending troops to fight for Russia in Ukraine, and the other concerns the China-India agreement on their vexing border issue.
The North Korea problem heightens tensions both east and west of the Eurasian continent. It directly threatens vibrant economies like South Korea and Japan, puts about 120 thousand American troops stationed between South Korea and Japan on high alert, and potentially presses China into a difficult decision: whether to side with Pyongyang and to what extent.
India’s developments are even more significant. Due to its demographics and market potential, India is the only “natural” single counterweight to China. Together, the two countries comprise about 40% of the global population. India’s joining Quad, the military agreement with the US, Japan, and Australia, was a major political coup as a hedge against Beijing. India had three main grievances against Beijing: 1. the border issue; 2. the trade imbalance and quality of trade (with claims that China doesn’t import much Indian industrial products, such as drugs or software); and 3. China’s “meddling” with India’s neighbors, Pakistan, Sri Lanka, Bangladesh, Nepal, or Myanmar.
The border issue was the most troublesome, with perhaps 1 million Indian troops deployed along the 3,000 km border and clashes having multiplied in recent years. Now, more trade talks aim to improve the situation.
Moreover, China is growing unhappy with the political instability in Pakistan, Sri Lanka, or Bangladesh, which endangers the safety of Beijing’s citizens and investments. In Pakistan, Chinese citizens working at the Gwadar mega port are under attack by local pro-independence Balochi militants. In Bangladesh, pro-India Prime Minister Sheikh Hasina was forced to flee the country in August. In Sri Lanka, the 2021 presidential elections ended peacefully with the victory of pro-China Anura Kumara Dissanayake of the National People’s Power (NPP), reflecting a political consensus. Yet the country remains divided: the South-West for Dissanayake and the North-East for Sajith Premadasa of the Samagi Jana Balawegaya (SJB).
More coordination with India might yield significant dividends for Chinese business interests and amplify Beijing’s voice in South Asian affairs. The new border accord isn’t a panacea and doesn’t negate the reality of Quad, but there’s a rumor of Russian mediation between the two Asian giants. Former Russian Prime Minister Yevgeny Primakov, in the late 1990s advocated for a strategic pan-Eurasian triangle between Russia, China, and India indirectly aimed against the US, power of the seas. This idea isn’t new; the USSR worked on it in the 1950s, but the 1962 China-India border war derailed it.
The recent China-India agreement is still too little, too early, but like the North Korean move, it may set in motion chains of events and flows of money that the US may want to monitor. Apparently, there’s no consensus in Washington, as events on both fronts are still unfolding, and thus, the two different personalities of the candidates may have considerable impact.
Russian President Vladimir Putin seems to follow in Primakov’s footsteps, weaving a complex web where no other appears to have a similar farsighted vision.
Thus, whoever wins the elections, Democrats and Republicans should reach a bipartisan consensus on foreign policy. It would prevent US politics from being hijacked by foreign powers with the resources and connections to exploit Washington fissures. US domestic politics is exceptionally fragmented and divided, so imagining a US grandmaster challenging the global strategy of a Russian grandmaster is unrealistic. Besides, no US grand strategist won Cold War 1.
After WWII, the US set up a network of economic cooperation agreements and military alliances that initially supported and then won the Cold War. The logic is that structures outlast the wile of a single general. Yet structures need comprehensive, long-term considerations and timely adjustments. The present crisis of the UN is evidence of that, as it was not adapted to very different circumstances (see https://www.appiainstitute.org/articles/china/unifils-fig-leaf-on-diverging-worldviews/). In this situation, many international organizations hinging on the US need even more severe corrections with wisdom and imagination.
China’s main strategic success so far has also been grounded on a similar principle, not on playing a chess game on the map. Thanks to a structure, the Belt and Road Initiative (BRI), Beijing has established a presence in half of the world. Yet BRI was conceived for a different world, without wars or trade confrontations and now, in these conditions, should need an overhaul, reflecting the direction China will choose to follow in the future.
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