By Aaron Putham

Around a month ago, I talked about the implications of Asian under a re-elected President Trump. Now that Biden has become elected the 46th president of the United State, I will focus on a Biden presidency scenario. Biden’s presidency will focus on rebuilding alliances and using a new approach to address relations with China. It could help to stabilize relations from the current pace of deterioration, but the overall trajectory of mistrust, competition, and limited confrontation will likely remain.

President Biden will face an Asia-Pacific region that has changed dramatically since he held office during Obama’s presidency. As trade and technology decoupling between the U.S. and China is arguably underway, a range of tariffs, export controls, and market access restrictions are fundamentally reshaping the relationship between the world’s two largest economies. A Biden administration would also inherit a trade relationship with the rest of Asia that has been shaken up by blanket tariffs (on items such as washing machines) and Trump’s 2017 decision to pull out of the Trans-Pacific Partnership.

Historically on relations with China, Biden and former Obama-era White House advisors have broadly focused on two areas where they would differ from the Trump administration – (1) taking a multilateral approach to China rather than a unilateral “American First” approach and (2) a focus on competing, rather than confronting and containing. A focus on competition could result in more assertive, U.S. industrial policy, aimed at boosting advanced manufacturing activity and securing supply chains for semiconductors, 5G networks, and other critical inputs for military and sensitive civilian applications.

Three shifts in policy making and priorities could occur under Biden presidency:

1. A multilateral approach to put collective pressure on China. This could increase pressure on China by coordinating global efforts. However, multilateral cooperation naturally forces moderation on more extreme policy options. In this respect, issues around market access, intellectual property rights, and bilateral investment could be coordinated more effectively, but marshalling the efforts of allies ultimately results in a more moderate agenda.
2. Policymaking could become more transparent and orthodox. The last four years have seen tensions around bilateral trade, cross border financial flows, and technology interdependence rise up simultaneously and independently-resulting in an unpredictable policy agenda that dramatically increased tensions. A Biden White House will likely have a more considered and coordinated approach that, at a minimum, could reduce uncertainty and volatility.
3. The bilateral dialogue with China could become a higher priority after falling off in recent years, both at the working level, as well as the more senior political levels. For the sake of managing tensions, more communication is always better than less.

There are things that may stay the same. Consensus has moved towards a view that confronting China is the right policy choice. Technology competition and partial decoupling are increasingly viewed on both sides of the Washington D.C. and both sides of the Paciifc as the new normal. Many of the drivers of U.S.-China tech competition predate and will outlast the Trump administration, including the fear that Chinese companies could dominate some technology sectors and a need to maintain domestic supply for critical technology infrastructure.

However, some more specific policies may see changes. The case of specific export restrictions could be reviewed in order to better reflect the commercial cost and benefit for U.S. businesses. The alleged ineffectiveness of tariffs as a foreign policy tool is always an issue. While they are unlikely to be rolled back without concession, a Biden White house will be less inclined to use them, at least not unilaterally. Lastly, a Biden White House will  place more emphasis on human rights.

What could this mean for investors? Larger fiscal support from the U.S. should be a reflationary tailwind for the cyclical recovery in the U.S. and the global economy. Meanwhile, a more stable relationship between the U.S. and China, even if it remains highly competitive and at times confrontational, can still be a positive for the markets, thanks to reduced unpredictability.

The Chinese economy is positive and its recovery is sustainable. More predictable foreign policy with less direct confrontation on trade could support further strength in Chinese assets. This could also be a positive catalyst or emerging markets across Asia. The trade-oriented economies along China’s supply chain (e.g., South Korea and Japan) could benefit from stronger trade lows. Meanwhile, the rest of Asia should benefit, to various degrees, from stronger global growth, a weaker USD, and more positive investor sentiment. □

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Work Cited

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