Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Investment Institute
Viewpoint Chief Economist

Trading Complexity

  • 25 January 2021 (5 min read)

Key points

This week we take a breather from commenting on the latest developments on the pandemic, the cycle and policy-making to focus on trade and investment relations between the US, China and the European Union, and more broadly the new conception of economic foreign policy under the Biden administration.

In her confirmation hearing Janet Yellen sounded quite belligerent on the trade relationship with China, expressing a readiness to use “a full array of tools” to deal with China’s “abusive, unfair and illegal practices” which would suggest that the Donald Trump era, on these issues, is not fully over. Still, while tension will remain significant, and we don’t expect the remaining tariffs from the previous administration to be rolled back quickly, we think that the new team in Washington DC will adopt a subtle attitude.

We draw from a paper co-authored by Jake Sullivan, Joe Biden’s new National Security advisor, “Making US foreign policy work better for the middle-class”. While the report considers that in the two decades before Donald Trump’s ascent US economic diplomacy failed to consider the adverse distributional effects of globalization at home, it still espouses a generic “pro-trade” approach and takes a nuanced view of China. The report breaks with the “America First” stance by recommending a strengthening of the multilateral system, in particular the WTO, with support from the US traditional allies. Biden will be tested quickly on this, since the WTO has just found against the US in a trade dispute with South Korea which dates back from the Obama administration. The new US President could take this opportunity to unlock the dispute-settling system of the WTO and draw on a common position established two years ago with the EU and Japan to reform its rulebook when it comes to state subsidies or forced technology transfers, two major causes of tension with China.

However, Biden’s leverage on China may not be massive. His team is not fond of unilateral tariff hikes, and financial sanctions are not a risk-free alternative to trade war. Moreover, his capacity to enlist allies against Chinese trade practices may be limited, now that the EU has discovered, with the Comprehensive Agreement on Investment (CAI) signed with Beijing, that they may not need to side with the US to get concrete results.

The CAI is of course a way for Beijing to put a wedge between the US and the EU, but beyond the geopolitical motive, it may reflect a genuine change of course in China on opening its market to foreign operators. There is a narrow path for a more cooperative approach on trade issues between China and the US. Overcoming mutual distrust over each other’s status on the world stage is the main hurdle, but we think international trade issues will be less explosive during the next four years.

    Not for Retail distribution

    This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    This promotional communication does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.

    The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.

    Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.