Being tough on China is ‘baseline’ for U.S. presidential hopefuls

No matter who wins the U.S. presidential election, China will likely continue to face stiff barriers to trade, says Jack Manley, global market strategist with J.P. Morgan Asset Management.

Manley said markets should anticipate continued tension between the world’s largest economies, given that both candidates for president support tariffs.

“One of the things that both sides of the aisle seem to agree on is that the United States needs to continue to be tough on China,” he said. “Being tough on China is the baseline.”

Manley said former President Donald Trump would likely take the harder stance. Not only did he launch the trade war in 2018 by imposing select tariffs, but he now supports across-the-board tariffs on all Chinese imports to bolster U.S. manufacturing.

For her part, Democratic candidate Vice-President Kamala Harris has not shied away from the issue. In campaign speeches, Harris has proposed new targeted tariffs, particularly on green energy products, and the Biden-Harris administration has not reversed the Trump tariffs.

“This actually is something that the president has unilateral authority to do,” Manley pointed out. “He or she does have the ability to raise or lower tariffs through executive action. So, you know baseline toughness will stay the same no matter who’s in charge.”

Another thing that is unlikely to change, he pointed out, is “reckless deficit spending.”

“It doesn’t matter what side of the aisle you’re on in U.S. politics, both sides like to spend money that we don’t have,” he said. “Democrats and Republicans will get to it in different ways. But the end result is the same, which is that deficits widen out and the debt increases.”

He said the Congressional Budget Office has projected that, barring a major policy change, the federal net debt-to-GDP ratio will increase from about 1 to about 1.25.

“If that’s not an all-time high, it’s about as high as it’s been since the civil war, if not the American Revolution,” he said.

The net result is more money spent servicing debt and less money available for things like bridges, roads, tunnels, hospitals, housing and schools.

“That’s money that has gone towards enhancing productivity and efficiency,” he said. “We need that now more than ever.”

He pointed out that candidates will try to attract votes by promising things such as tax breaks and new spending, but the real power is in the hands of the U.S. House of Representatives and the Senate.

“Taxation policy and, to some extent, spending policy are both the remit of Congress,” he said.

Manley said an election cycle is among many factors that can contribute to market volatility, which has potentially been greater this year than in previous election years, given the unexpected drama of U.S. President Joe Biden’s withdrawal from the race and two assassination attempts on Trump.

He expects election-driven turbulence to be temporary, though.

“I do think you will have a period of calm, post-election,” he said, adding that once investors know what the composition of government is going to look like, they can anticipate policies and market implications.

The bottom line for investors, he said, is to trust that the U.S. economy will grow over the long run, regardless of what happens in November.

“You cannot let your views on politics interfere with your investing decisions,” he said.

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.