SFC Markets and Finance | Biden drops out of the 2024 race: what happens next?

南方财经全媒体记者 李依农、杨雨莱 上海、广州报道

Biden drops out of 2024 election

On July 21st in Washington, the U.S. President Joe Biden has ended his re-election campaign and endorsed Vice-President Kamala Harris to succeed him as the Democratic candidate for the 2024 U.S. presidential race. Biden shared his decision in a written statement, expressing that it was the "greatest honor" to serve as President but that stepping aside was "in the best interest of my party and the country.”

To gain deeper insights into this political shift, we first have the U.S. Senior Economist, David Blair and Lv Xiang, a researcher at the Chinese Academy of Social Sciences’ Institute of American Studies, with us.

SFC Markets and Finance: What is your perspective on Biden's withdrawal and the series of developments in the U.S. election thus far?

Biden's out shows the non-transparent U.S. democratic process

David Blair: Well, if you go back to the debate, I will start with the first debate, but it's the first and last debate between Trump and President Biden. Biden was very quickly criticized by CNN, MSNBC and the rest of the party press for his performance in the debate.

But to me, he seemed the same as he always is. I mean there was no difference between the way he talked during the debate and the way he's been talking for years. To begin with, he's never been known as an intellectual giant. So I think his withdrawal was planned by either senior donors or senior politicians in the democratic party.

Before the debate happened, I mean they knew the way he was going to perform and they already told the press the way to respond to try to force him out. For a long time, he has been saying he refused to leave and even until apparently a day or two ago, he was still telling people he was going to refuse to leave. They can't legally force him out because of the way the party primaries were structured. Basically, a lot of the primaries in the United States are votes only within the party to determine who the party candidate will be, and a lot of the party primaries were canceled and nobody else was allowed to compete.

The senior people were afraid that if they allowed real competition, there's no telling who would have won. I don't know what kind of pressure was put on him to leave, but there was a lot of pressure put on him to leave. I mean this has been a very non-transparent, non-democratic process to force him out. 

It seems to be that Kamala Harris, the current Vice-President is being put in his place. At least he endorsed her, but she's not a very strong candidate. Barack Obama is refusing to endorse her. So I'm not sure where that's going to go.

Biden's withdrawal was unprecedented

Lv Xiang: I think this is the situation in the U.S. After encountering some unpredictable and uncontrollable factors, a very unique situation has arisen. In the past, there have been instances of voluntary withdrawals, for example, Lyndon Johnson in 1968. He withdrew from the race, but that withdrawal happened much earlier than now, and it was a very deliberate action. Because he knew that his heart was suffering from a serious issue, and he couldn’t keep going.

But this time, it's clearly a forced mistake. Such inexplicable mistakes, previously, for example, when no one had high hopes, in the case where both individuals were not looked upon favorably, any side might experience an accident. So now, looking at it, Biden’s situation is deteriorating faster than most people initially thought. Especially after this debate, it is clear that Trump’s advantage has been significantly solidified. And with the addition of the shooting incident, the Democratic Party has already felt that there is no room for maneuver with Biden. So now they are trying to find some maneuvering space by replacing him.

Biden hesitated, and was indecisive, waiting until local time yesterday afternoon, their afternoon time, which was around 2 a.m. our time, because at this critical moment, at this point in time, changing candidates is unprecedented in history. We know there have been a few voluntary withdrawals, but none that have dragged on to this point to change leaders. This is an unbelievable situation.

SFC Markets and Finance: Looking back through the entire history of U.S. elections, Biden’s withdrawal is unprecedented. What does this decision reveal about the current societal and political challenges in the U.S.?

Many basic institutions of the U.S. government have been compromised

David Blair: We've never seen anything like what's been happening in the U.S., really not for just the last few weeks, but for the last few years.

In my opinion, a lot of the basic institutions of the United States government have been compromised. Basically, many of these institutions which are fundamental to governments have been totally compromised. So I'm not surprised to see a compromise of the democratic process in choosing a candidate.

But I'm very worried about the nature of U.S. governance because it seems to be dependent on a few people who have sort of hidden control over everything that's going on. I think we'll see where the election goes.

SFC Markets and Finance: What are the policy challenges that arise from this decision?

Inflation is the main issue for Biden's regime

Lv Xiang: Biden’s issue, the most critical factor, in my opinion, is inflation. They significantly underestimated the impact of inflation on both the public and the economy. And this overall feeling is the most fundamental reason for his failure. Biden, along with his Democratic supporters, can present a host of macroeconomic data favorable to their administration. But, unless this macro data translates into tangible benefits for the people, discussing macro data is meaningless. 

Similarly, if Trump were to govern, the contradictions he faces are not easily resolved.

SFC Markets and Finance: What do you think are the potential impacts on the U.S. economy and industries?

Policy focus may shift from national security to domestic affairs

David Blair: I want to say something about China's relationship with the United States, and it is related to industry. I've read a lot of JD Vance’s writings, and he is very pro-labor and very anti-war. As you probably know, he grew up in a very poor family and had a very terrible situation. So he has a lot of concern for working-class people. He is very harsh about traditional Republican business-oriented people. So I think, maybe this is wishful thinking on my part, but I think that Trump-Vance, the presidency, and vice presidency will have a totally different orientation than we've seen in the past. Even in the First Trump term, Trump was saying many of those things, but he was also kind of split. So I'm hoping that's a signal for a kind of governance that we'll get, and that makes a big difference.

I think for China’s possible thinking in terms of economic relations, I think Trump will be a very hard negotiator. He's trying to negotiate a good position, particularly for increasing jobs and wages in the United States. And wages have been flat in the United States. The average people's real wages are lower than they were in 1979, and that has got to change. And China is not to blame for that. That was long before China had any influence. There's a lot, essentially we stopped enforcing antitrust law, we allowed monopolization to arise, and we allowed big changes in the banking system that stopped supporting the real economy but supported a risky investment economy. All those sorts of things happened.

We'll probably see there will be protectionism. There will be an attempt to protect American jobs. So that will affect China, but that's a negotiation. If you have a business opponent, you don't hate him, you just try to negotiate with him. That may not be pleasant, but it's a negotiation. I think what we'll see out of a Trump-Vance administration is they don't care anything about the American empire.

So, I think instead of having a very national security-oriented U.S. administration, which this administration has been now, I think we'll see a reversal that there has been less interest in sort of American dominance. Making America great again does not mean making China worse, doesn't mean making anybody else worse. It's about domestic affairs more than anything else.

So I hope, I mean this is more of hope than certainty, but I think it's true that we'll see a pretty quick move towards a more peaceful world, where people are more interested in business and economic negotiations than any sort of military threats.

Financial market may experience further volatility

The financial markets, including currencies, shares, commodities and more, are set to react to Biden's sudden withdrawal from the presidential race. Lastly, we turn to Zhang Antian, a senior macroeconomic analyst at China Merchants Securities Research and Development Center, to discuss how Biden’s decision might affect financial markets.

The election has limited influence on small-cap stocks

Zhang Antian: After Biden's withdrawal, the probability of a scenario with Trump and a divergent Congress is greater than that of a sweeping victory for Trump. One reason is that Harris fits the demographic portrait of the 2024 election better, since voters from the "baby boomer" generation may not be the main base, but rather the millennial generation or "Generation Z". Another factor is that the outflow of Biden's campaign funds may be curbed.

In terms of "Trump's trade", small-cap stocks in the U.S. market benefited from a sweeping victory by the Republicans, but also from the expectations of lower interest rates and a "soft landing" of the U.S. economy. At present, lower interest rates and a "soft landing" are still the main direction, so the impact of the election on (the market) may be limited.

Firstly, the Fed has shifted to observing more data rather than relying on economic forecasts. Treasury bonds' pricing for the Fed, although being more volatile,  will not see a significant change in the equilibrium center, and will not price in Trump's mid-term impact on inflation in advance. In addition, the direction of fiscal policy still has strong uncertainty.

At the same time, a "soft landing" of the U.S. economy is still the main scenario. When the U.S. economy slows down, under the condition of moderate cooling of the demand side, the demand side (the market) may rebound after the Fed’s interest rate cut. So, the impact of the U.S. election on small-cap stocks is limited. 

Investors may switch from tech stocks to value stocks

Zhang Antian: The technology stocks previously benefited from the loose antitrust regulation under Trump's policies. JD Vance, who supports the antitrust of technology stocks, has added variables to this. Now, under a possible background of Trump and a divergent Congress, if the technology stock earnings season from the end of July to mid-August does not meet expectations, and the unemployment rate rebounds, the market may speculate on the "Sahm rule" to drive U.S. treasury yields down. All of these factors may become triggers for the style switch from technology stocks to value stocks.

Trade barriers may have greater impact on Eurozone

Zhang Antian: Regarding other asset prices, Trump's trade barrier policies may bypass the U.S. Congress. So, under the possible condition of Trump and a divergent Congress, the expectations in trade barriers will not change greatly. This policy will affect the U.S. economic growth rate, but it will have a greater impact on the Eurozone and export-oriented emerging economies.

（市场有风险，投资需谨慎。本节目嘉宾意见仅代表本人观点。）

策划：于晓娜

监制：施诗

责任编辑：李依农

记者：李依农 杨雨莱 见习记者梁旭琦

制作：李群 蔡于恬 实习生许洁璇

拍摄：胡凯文

新媒体统筹：丁青云 曾婷芳 赖禧 黄达迅

海外运营监制: 黄燕淑

海外运营内容统筹: 黄子豪 

海外运营编辑：庄欢 吴婉婕 龙李华 张伟韬

出品：南方财经全媒体集团