Economist predicts a Biden win, continued reshoring and ongoing China hawkishness

Thu 30 Nov 2023
Posted by: Richard Cree
Trade News

US, Canada and Mexico's flags

The Economist Intelligence Unit (EIU) has published its North America Outlook 2024 report, in which it predicts next year’s US election will result in Joe Biden narrowly beating Donald Trump in a rematch of the 2020 campaign.

While it admits that “plan B” candidates on both sides could yet break through, there are no real contenders, as yet, to either of the front runners.

The EIU predicts the US economy will avoid recession, although growth will slow to just 1% next year. It expects the Fed to start slowly cutting interest rates only in the second half of the year.

It also notes the significant impact of Biden’s Inflation Reduction Act (IRA) on reshoring manufacturing, with over half of FDI in 2022 being related to manufacturing projects. It expects this manufacturing boom to continue into 2024.

No China shift

Regardless of who wins the election next year, the EIU expects little shift in China-US relations, with both main candidates likely to remain hawkish, potentially even escalating trade barriers and sanctions, while seeking to avoid an outright conflict, particularly over Taiwan.

Indeed, the repercussions of the Biden-Xi meeting in the middle of November continue to rumble on, with other analysts pouring over what it means for the US, China and the global economy.

With a new set of surprisingly poor PMI data for China released today (30 November), there seems to be more pressure on President Xi to do whatever is necessary to get China growing again, even if that means risking an escalation of a trade war with the US.

The FT today has a fascinating long read today (30 November) exploring an unexpected consequence of current sanctions against China. The story focuses on how Chinese tech giant Huawei signed a risky deal with state-owned Semiconductor Manufacturing International Corporation (SMIC) to create a new, state-of-the-art smartphone chip.

The risk paid off with Huawei’s latest handset boasting a chip so capable it took many US tech experts by surprise.

Canada internal trade deal spat

Back in North America, there is a risk of a strain in US-Canada relations as Canada continues to pursue a digital sales tax (DST), due to come into force in January 2024. This could, says the EIU, “potentially jeopardise” the renewal of the United States-Mexico-Canada Agreement (USMCA) for trade.

Elsewhere in North America, a row has broken out in Canada over the government’s attempt to update the Canada-Ukraine Free Trade Agreement (CUFTA). The opposition Conservative Party voted against the update to CUFTA, arguing that it would impose a carbon tax on Ukraine, which it describes as a “cruel” and “disgusting” betrayal of the people of Ukraine.

Government supporters claim this is not true, pointing out that the relevant clause isn’t binding and is meant to open dialogue and discussion. Other observers have pointed out that Ukraine has had its own carbon tax regime since 2011.

Canada-EU deal

Canada’s international trade minister, Mary Ng, has been in Europe urging several leading nations to ratify the Canada and EU’s trade deal. Despite the Comprehensive Economic and Trade Agreement (CETA) being provisionally agreed in 2017, it needs to be ratified by all individual member states before it can come into full effect.

Nevertheless, with the deal now mostly up and running, Ng told CNBC that the economic benefits of CETA were already being felt by both sides.

UK dairy cheesed off over lack of a deal

British cheese exporters are concerned that exports to Canada will be hit badly as a temporary rollover arrangement, which allows them tariff-free access to Canada, comes to an end at the end of this year.

The industry is calling for the so-called “cheese letters” to be extended again in lieu of a permanent deal being struck, the FT reports. According to the Food and Drinks Federation, the UK exports almost £19m of cheese to Canada every year, accounting for roughly 2.5% of the UK’s total cheese exports.

It's not just British cheese that may be disappearing off Canadian shelves either, as last week a trade dispute panel ruled in Canada’s favour on dairy import quotas. Reuters reports that US agriculture secretary Tom Vilsack says the Biden administration will now start looking for more “creative” ways to sell US dairy products in Canada.

India under pressure from US and Canada

Relations between Canada and India have also been on edge for months over claims the Indian government was involvement in the assassination of a Canadian Sikh, leading to the withdrawal of Canadian diplomats from India.

Now the US faces a similar challenge as authorities there say an Indian government official was behind a plot to assassinate a Sikh leader in New York City.

It represents a challenge for US president Joe Biden, who has made much of efforts to build closer ties with India, including recently settling their last outstanding World Trade Organization (WTO) dispute. Getting cosy with India is part a diplomatic and geopolitical counter to poor US-China relations.

Mexico

Mexico’s economy continues to boom, thanks in part to a massive uptick in the nearshoring of manufacturing (this piece on the huge growth of manufacturing hotspot Monterrey is a good example).

While the economy is booming, eyes in Mexico City are already on next year’s elections. While elections aren’t due to be held until June 2024, the race to replace President Andrés Manuel López Obrador has kicked off in earnest, with both main coalitions selecting a female candidate.

Current polling puts Obrador’s Morena party and its alliance partners well ahead.

Henry Kissinger RIP (realpolitik in peace)

It is impossible to run a North American trade roundup today without mentioning the death of iconic international statesman Henry Kissinger, announced by his eponymous consulting firm last night. An undoubtedly controversial figure, his death has seen him lionised by many and condemned by others.

He won the Nobel Prize for Peace in 1973 and yet Rolling Stone’s obituary describes him as a “notorious war criminal”.  He was famous for inventing the idea of “shuttle diplomacy” and for easing global tensions during the Cold War strengthening relations between the US and both China and Russia.

While many can’t forgive his part in the US bombing campaign in Cambodia and intervention in Chile, others prefer to focus on what Le Monde describes as his use of “cynicism and seduction, brutality and skill” to take on the Soviet Union.