Joe Biden’s path on China and US economic recovery is likely to be similar to Donald Trump’s

Many of the underlying issues that plagued the Trump administration remain, including US-China competition, national security concerns and populism
Biden’s relatively narrow victory with a divided Congress could still bode well for Asia if a more modest stimulus package passes after his inauguration

Aidan Yao

Published: 10:00pm, 18 Nov 2020

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Global markets breathed a sigh of relief as the US presidential election turned out to be less messy than feared. Even though the sitting president still has not conceded at the time of writing, the market seems to be certain enough about who will oversee the White House after January 20.

Despite all the legal challenges and political noise, investors have moved on to other matters affecting the global economy, such as the pandemic and the development of Covid-19 vaccines. However, the impact of the US election does not end with the immediate reaction of the financial markets. Many believe the election marked the beginning of more stable and predictable US policymaking.

What does this mean for China and wider Asia? First, a Joe Biden presidency could lead to some tactical changes in America’s China policies, but the overall competitive nature in the bilateral relationship is unlikely to change.

On the positive end, the two sides may find common ground to cooperate on issues such as climate change, nuclear proliferation and possibly combating global health threats like Covid-19.

06:04

US-China relations: Joe Biden would approach China with more ‘regularity and normality’

On the economic front, de-escalation of trade tensions is increasingly priced in, not least by the foreign exchange market given the strong rally in the renminbi-US dollar exchange rate. Tariffs are unlikely to be rolled back immediately as Biden’s priority will be on domestic issues.

Plus, he might want to use the removal of tariffs to gain concessions from China in other areas, which will require further negotiations. Nevertheless, more constructive trade talks, possibly involving multilateral institutions such as the World Trade Organization, will help bridge gaps and gradually remove some risk for financial markets and economies.

Second, there is less optimism about the United States and China resolving their tech disputes. While the new president might adopt a different approach, both countries are likely to continue to see each other as rivals in this field and find ways to indigenise frontier technology which is increasingly viewed as a matter of national security.

Hence, even though Biden might use fewer sanctions and trade restrictions against Chinese firms, the chance of the US and China working together to advance the technology boundary is still quite low. Compared to reduced trade tensions, a decoupling in core technology such as 5G could set back globalisation and inflict lasting pain on the global economy.

Third, outside the economic sphere, Biden’s actions in areas such as human rights, Taiwan, Hong Kong and disputes in the South and East China Seas are likely to be less unilateral and better calibrated to account for the interests of US allies in the region.

However, US public opinion is becoming more unfavourable towards China and sitting US President Donald Trump’s anti-China policies have received bipartisan support. As such, Biden will face pressure to adhere to populist views among lawmakers and the public.

These issues could drive up market volatility. Anything short of a full-scale military conflict, though, is unlikely to cause any material damage to Asian economies.

03:58

People on the streets of Beijing react to Biden's US presidential election victory over Trump

Finally, as an overall assessment, the US election result represents a modest positive for Asia. Even though control of the Senate still hangs in the balance, the working assumption is that Biden will not have a unified Congress behind him.

This will create some hurdles for enacting large fiscal stimulus packages in the near term, but a watered-down plan is still likely to pass in early 2021. In conjunction with more effective control of the virus, this is expected to aid the US economic recovery, which will be positive for Asia.

Biden’s top task: see US through the pandemic, limit its economic impact

The bigger obstacle lies with advancing Biden’s infrastructure spending agenda in the coming years. This also means that reversing Trump’s tax cuts and tightening regulations will be more challenging. The latter has helped to dispel investor concerns and bolstered equity markets in recent sessions.

The lack of a strong fiscal impulse – compared to the political landscape after a “blue wave” election – means the US Federal Reserve will face more pressure to support the economy. This monetary accommodation will weigh on Asian interest rates, offsetting the upwards pressure from the region’s economic recovery out of the pandemic-induced slump.

Aidan Yao is senior emerging Asia economist at AXA Investment Managers

This article appeared in the South China Morning Post print edition as: Biden victory unlikely to bring major policy changes on China

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