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Trump vs Biden: what could it mean for a post-Brexit UK-US trade deal?

We have a look at how the outcome of the US election could impact a future trade deal between the US and the UK and explain how to trade the opportunity.

  • The UK is determined to maintain its special relationship with the US regardless of who the president is in order to ensure a UK-US post-Brexit trade deal can be agreed.
  • US President Donald Trump is more supportive of Brexit and keener to sign a trade deal with the UK than Biden, who has warned the UK it could risk a deal if Brexit disrupts the Good Friday Agreement.
  • Another term under Trump is expected to be more supportive of the pound than a Biden victory.
  • The FTSE 100 could benefit more with Trump in charge, whilst the FTSE 250 could become more appealing to UK investors if Joe Biden is in the White House.

UK confident of strong relationship with US under Trump or Biden

On Monday morning, as the world waited with bated breath to find out the result of the US presidential election, UK foreign secretary Dominic Raab said he was confident that the special relationship between the UK and the US will go ‘from strength to strength, whichever candidate wins the election.’

Raab told Sky News that there would be ‘slightly different contours of the opportunities and the risks’ depending on who was in the White House, but said relations would still be underpinned by the ‘bedrock’ of the two countries shared security, economic and cultural ties.

The outcome of the presidential election in the US, the world’s largest economy and a leading superpower, will have an impact around the globe. For the UK, one of the most important questions is who will be on the other side of the negotiating table as it tries to strike a post-Brexit trade deal with the US – which is seen as one of, if not the most lucrative trade deal the UK could strike as it ventures out onto the world stage on its own, free from the shackles of EU rules.

Read more: How to trade Brexit volatility

The US is the UK’s largest trading partner, accounting for 13% of all imports and 20% of exports in 2019. That is more than any individual EU country but considerably less than trade with the bloc as a whole, which accounts for a staggering 47% of the UK’s international trade. The UK is keen to remove tariffs currently placed on British goods exported across the pond. However, the deal is far less important to the US considering the UK is its seventh-largest trading partner that accounts for just 3% of trade.

It is important to remember that it is not only trade between the UK and the EU that will be overhauled at the start of next year, but also the UK’s trade with virtually every other country in the world. So far, the UK has failed to line-up new trade deals to replace the ones that it will lose at the start of 2021. Secretary of international trade Liz Truss recently unveiled the UK’s first deal as an ‘independent trading nation’ with Japan, but the fact remains that talks with virtually all other major countries is yet to materialise into hard agreements.

Trump vs Biden: how could they impact a future UK-US trade deal?

The UK and the US have been in discussions about a post-Brexit trade deal for some time. The fifth round of talks closed at the end of October and Truss described them as ‘the most intensive round of negotiations held so far’, adding the pair were in a ‘good position to move forward after the US election.’

But how much of a difference will the winner of the presidential election make to a future trade deal? Well, the big picture doesn’t change that much. Both Donald Trump and Joe Biden will want to strike a trade deal with the UK, and most of the major sticking points will remain the same regardless of who is in the White House. This includes the US’s determination to get its farmers access to the UK market despite the concerns of Brits about it lowering food standards, and disagreement over how much the National Health Service (NHS) pays American pharmaceutical companies for drugs.

But, as Raab suggested, the nature and timing of any deal could differ depending on whether Trump or Biden wins the White House.

Trump and Biden have different views on the UK’s situation at present. For example, Trump supports Brexit and has praised the UK’s decision to leave the EU, whilst Biden is against Brexit and has proven to be more pro-European.

Biden has warned the UK that a deal could be in jeopardy if the Good Friday Agreement is broken under a so-called no-deal Brexit, while Trump has not had any problems with the messy divorce proceedings. Trump has said the UK would be at the front of the queue for a deal, while Biden is thought to share the view of former Democrat president Barack Obama, who warned the UK could find itself at the back of the queue.

This suggests it will be easier and quicker for the UK to sign a trade deal with Trump in charge rather than Biden – which is notable considering the UK is aiming to have everything tied-up by 2022 at the latest.

How could the UK-US trade deal negotiations impact GBP/USD?

Trump and Biden’s different view on Brexit could play a role in determining the future of GBP/USD. For example, Trump’s support for Brexit and disagreements with the EU suggest another term could be more supportive for sterling than Biden, who is more likely to prioritise the EU over the UK and support EUR/USD.

However, a potential UK-US trade deal is only one element that will influence the forex market. In the immediate future, the biggest driver of the dollar will come down to the size of the stimulus package that the new president can get through to fight the economic downturn caused by the coronavirus pandemic.

Much of this will depend on whether the Democrats or the Republicans can control both the White House and the Senate and either’s ability to push through their policies, or whether there will be a continued deadlock. Deadlock would likely limit the size of any stimulus package, which would be more supportive to the dollar versus other currencies compared to a large stimulus that would likely be passed if one party has full control.

How could the UK-US trade deal impact the FTSE 100 and FTSE 250?

In terms of GBP, a weaker pound typically supports the FTSE 100 as it contains more internationally-focused companies that benefit when they translate their overseas earnings into sterling. This is because it makes their goods and services cheaper to export to other countries. The FTSE 250 is made up of more domestically-focused companies that tend to benefit more from a stronger pound.

Read more: How to trade or invest in the FTSE 100

However, on the other hand, the FTSE 100 is more exposed to how talks between the US and the UK progress. This means the FTSE 100 could find support if Trump is in charge as a deal becomes more likely as the UK’s larger and more international-focused businesses will be set to benefit the most. However, a Biden win could make the FTSE 250 more attractive to UK investors over the FTSE 100 considering a trade deal is likely to face more barriers and take longer to agree.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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