by Greg Valliere, AGF Management Ltd.
THE NEW PRESIDENT has won passage of a huge Covid relief bill that ensures a red-hot economy by summer, but Joe Biden now faces an irritant that’s unlikely to go away: geopolitics, with friction persisting on several fronts.
RELATIONS WITH CHINA are close to rock bottom; officials from both countries who met in Alaska yesterday couldn’t even agree on the format for talks, which began with insults and grievances. The best that can be expected later today is a statement agreeing to talk again.
THE BIDEN ADMNISTRATION is determined to ramp up U.S. manufacturing facilities, lessening American dependence on Chinese exports, especially medical supplies. Biden wants to unite U.S. allies against China, focusing on human rights abuses in Hong Kong and against Uyghur Muslims. Donald Trump never cared much about human rights, but Biden will make this a major issue.
WITH DISSENT LARGELY CRUSHED in Hong Kong, analysts worry about Beijing’s next focus. Australia, Japan and other countries in the region have been intimidated by the Chinese, but the big fear is Taiwan, which Beijing considers a rebel province.
THRE’S DEEP ANTIPATHY TOWARD CHINA in Washington, where members of both parties cite Beijing’s lack of transparency on Covid-19 and the persistent hacks of U.S. companies. There’s still trade between the two countries, especially U.S. agricultural products, but any easing of Trump’s tariffs is unlikely.
AND THEN THERE’S RUSSIA: Biden has a habit of making over-the-top comments, which surely applies to his accurate but indiscreet assertion this week that Vladimir Putin is a “killer.” Russia immediately recalled its ambassador to the U.S., and it’s inconceivable that relations between Moscow and Washington will improve any time soon.
AT THE LEAST, RUSSIA will continue to fund proxies in the Mideast; at the worst, there will be anxiety over Russia’s intentions in Ukraine, Belarus, Lithuania, Latvia, and Estonia. Putin has frequently stated that he wants to re-assemble the old Soviet Union.
AFGHANISTAN: Trump wanted to get out of this endless conflict — the longest war in U.S. history — but it’s increasingly unlikely that Biden will withdraw troops. Biden listens to his generals, who are adamant that the U.S. should maintain a presence in the region.
IRAN: Biden would like to resume talks on Tehran’s nuclear ambitions, but militant Ayatollahs are unlikely to accept any deal that would mandate stringent inspections of Iran’s uranium enrichment facilities. Friction between the two countries will persist, with sporadic Iranian rocket attacks on Iraqi and Saudi facilities.
NORTH KOREA: It’s virtually certain that erratic leader Kim Jong Un will test one of his huge new missiles, which appeared in Pyongyang parades last fall and again early this year. Kim wants attention and a lifting of sanctions; he will get the former but not the latter.
DEFENSE SPENDING WON’T DECREASE: Progressives were hoping to slash U.S. defense outlays, which are about $750 billion annually; China is second at slightly more than $200 billion, and no other country comes close to $100 billion. Biden may oppose major new defense expenditures, but a decrease in Pentagon funding is very unlikely.
BOTTOM LINE: Trump managed to keep a lid on most geopolitical crises, with his bluster and flattery of foreign despots. His rhetoric and tariffs defied diplomatic norms; countries couldn’t quite figure him out. Biden’s policies are more traditional — but a suspicion persists that he will be tested on several fronts.
