With the most chaotic US election in memory four weeks out, it’s safe to say Asia is not sure what to expect.
Neither do Americans, of course. Not with Covid-19-addled President Donald Trump ready to do seemingly anything to cling to the White House. Trump is not just cheating in plain sight, he’s telegraphing lawsuits and maneuvers to come to try to invalidate the results of an election that polls show he’s losing.
For Asia, three big questions are hanging over both the geopolitical and investment communities.
First, how ugly might the Trump versus Joe Biden brawl get between now and November 3? Two, what might a Biden presidency portend for a trade war-weary region? Three, how might another four years of Trumpian turmoil play out?
The answer to how bad things might get is “very.”
Trump spent the last seven months denying the coronavirus exists and ginning up distractions left and right. To punish China for birthing the pandemic, Trump has tightened the noose on Huawei Technologies and gone after ByteDance’s TikTok and Tencent’s WeChat, among others.
This White House effectively cut off trade talks, restricted visas for mainland journalists and turned America’s back on Hong Kong. It shuttered a Chinese diplomatic compound in Houston. It stepped away from the World Health Organization over Trump’s allegations WHO is covering for Beijing on Covid-19. Trump even sent a cabinet member to Taiwan to troll Chinese President Xi Jinping.
Yet what-comes-next risks to Asian markets have risen along with Trump’s body temperature.
What does the future hold?
The president’s hospitalization wrecked his ignore-the-pandemic re-election strategy. That ups the odds Trump will seek to distract voters with fresh moves to ratchet up the China trade war.
That could mean even higher tariffs on Chinese goods. It could mean a broader effort to kneecap China’s tech giants, throwing fresh turmoil into the supply chains on which Asia relies.
It could mean a weaker dollar, as Trump directs Treasury Secretary Steven Mnuchin and the Federal Reserve to effectively devalue an already weakening reserve currency.
Might Trump tiptoe up to defaulting on US debt? Bond traders remember well Trump telling CNBC on the campaign trail in May 2016: “I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So, therefore, you can’t lose.”
Earlier this year, Trump’s White House mulled whether to “cancel” parts of debt obligations to China, which holds nearly US$1.1 trillion of US Treasury securities.
This, of course, makes Beijing reluctant to hold so much US debt. There have been hints in recent months, for example, that Beijing is upping purchases of Japanese government bonds. Between April and July, Beijing bought nearly $14 billion of yen-denominated debt, more than three times year-earlier purchases.
Trump may believe he has an added reason to up the ante: his trade war has proved a complete dud for the US economy. The trade deficit with China has barely budged as imports and exports largely flat-lined in the pre-Covid 2018-2019 period.
The US manufacturing renaissance Trump promised went about as well as pledges to make coal great again. A surge in farm bankruptcies necessitated tens of billions of dollars of bailouts, ironically financed by borrowing from China.
Nobel laureate Joseph Stiglitz points out that on Trump’s watch – and pre-Covid – the US fell even more markedly in metrics including inequality, gender-pay ratios, life expectancy and quality of education.
Top-line economic output, employment and real wages all continued at the same pre-Trump pace. Then came the trade war, which generated unwelcome headwinds.
Sure, Trump slowed China’s export engine and complicated its global tech ambitions. But at an even greater cost to US consumers and Washington’s global clout.
Better with Biden?
All this creates quite a headache for a Biden presidency – an election outcome polls suggest is most likely. This, of course, is barring Trumpian efforts to overturn the democratic contest, which could unleash chaos in world markets.
Biden’s “Build Back Better” plan is more specific than Trump’s blunt-force approach. The idea being that beating up on China might feel good, but it’s counterproductive unless it is part of a real strategy to hone US competitiveness and pull jobs back home.
In Biden’s case, that means pressuring government contractors to source only US-made products. In practice, this would be barely better than Trump’s tariffs. More orderly, certainly, but the strategy would still make intermediate goods more expensive under the guise of protecting domestic companies.
The odds are, China probably fears a Biden presidency more than four more years of Trump.
For all today’s trade-war chaos, Trump’s blustery China policies are playing to Xi’s longer-term objectives. “Trump is destroying US alliances,” says Zhou Xiaoming, a former Chinese trade negotiator and one-time deputy representative in Geneva.
Biden, Zhou says, “could be more dangerous” for Beijing by rejoining multilateral efforts to curb China’s influence.
Biden’s first step would probably be re-engaging the Trans-Pacific Partnership, or TPP, which he helped create as vice-president to Barack Obama from 2009 to 2017. The pact is now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Had Trump not pulled out of the 12-nation trade deal, US farmers now skirting bankruptcy would be gaining increased access to consumers in Canada, Chile, Japan, Mexico, Singapore, Australia, New Zealand and elsewhere, not losing sales.
The key would be to expand the tent – to pull South Korea, Indonesia, the Philippines, Thailand and others into the fold to expand the influence of CPTPP.
Building greater North Asian ties would likely be a top Biden priority. Though Trump pulled off a great kabuki act with former Japanese Prime Minister Shinzo Abe, their supposed bromance was more a case study in geopolitical bullying.
So petrified was Abe that Trump might give Tokyo the China-tariffs treatment that Japan handed the US leader anything he wanted. A bilateral trade deal, nominating Trump for a Nobel Peace Prize, sitting idly by as Trump tried to extort Tokyo, mafia-style, for $8 billion per year for hosting US troops, you name it.
Biden would surely revert to a less extortionate foreign policy with Japan and South Korea. That’s advisable as 2021 looks to be a year of negligible growth at best and with possible debt crises on the horizon as Covid-19 collides with climate-change-related dislocations.
Only the resumption of multilateral efforts can head off the pandemic and make genuine progress on reducing carbon emissions.
Biden also would likely view restoring China ties as a group effort. Though Trump-era bullying made more headlines, Abe left Tokyo-Beijing relations in a sorry state. Nor are Seoul-Beijing relations where South Korean President Moon Jae-in hoped they might be as 2020 staggers toward a close.
“Joe Biden has promised to be tough on China if he wins, but he is less likely to spring disruptive policy surprises, such as higher tariffs, than Trump,” says analyst Wei He of Gavekal Research.
Even so, there’s reason to think Biden will come to his own blows with Xi’s government.
Biden’s party is an increasingly young and progressive one with little tolerance for a return to the trade deals of the past. In the Democratic primary race, remember, Biden had to answer for supporting the North American Free-Trade Agreement, China’s accession into the World Trade Organization and for the TPP not having more teeth.
“You don’t want to be accused of being soft on China,” says James Lewis, senior vice-president of think tank Center for Strategic and International Studies.
Biden’s economic advisors have prioritized rebuilding America’s economic muscle with increased innovation, productivity, education and training. The Trump era was more about lassoing jobs from China back to the US.
The Biden team seems keener on creating new jobs, many in the green economy space.
As Biden advisor Tony Blinken puts it, the question isn’t “who’s tough or who’s weak on China,” but “who has the most effective strategy to protect and advance prosperity, values and security.”
That alone is an important contrast from Trump’s zero-sum game worldview, one that’s done little to raise US wages.
What about Trump pulling off another upset, as he did in 2016? The scenario can’t be ruled out given how Trump and fellow Republicans are testing America’s political fences for vulnerabilities like the raptors of Jurassic Park infamy.
They’ve filed hundreds of lawsuits aimed at disenfranchising voters, strangled the postal system, closed myriad voting sites, encouraged armed militia to police polling sites and played footsie with Russia and other foreign actors dreading a Biden presidency.
A second Trump term would be an accountability-free zone. Trump has already survived impeachment and (presumably) the coronavirus. The White House would become even more like a supersized Trump Organization, with family members taking on ever greater roles mixing government and personal business.
Despots, remember, view Trump as a kindred spirit, and vice versa. Trump would be sure to undermine international institutions from the United Nations to the WTO to the International Monetary Fund to the courts at The Hague.
Students of the Ferdinand Marcos era in the Philippines have seen this film before. The dictator who ran what was in the 1960s Southeast Asia’s richest nation into the ground attacked “false news,” said he was taking on a deep state and morphed the presidency into a family business.
“Some of the ways Trump mirrors Marcos are almost uncanny,” argues William Rempel, author of Delusions of a Dictator: The Mind of Marcos as Revealed in his Secret Diaries.
Trump 2.0, meantime, would almost certainly go after China with far greater ferocity.
“A victory for the unpredictable Trump could see the market price-in an additional risk premium on the Chinese currency, which could cause the renminbi to depreciate sharply against the dollar, at least initially,” says Gavekal’s He.
In fact, win or lose, China could be in Trumpian trouble following the US president’s bout with Covid-19.
Eurasia Group analyst Michael Hirson calls it an “unwelcome October surprise” for Beijing. China, Hirson says, has been bracing for pre-election pokes at Asia’s biggest economy, one playing the villainous role that Japan did in Trump’s worldview in the 1980s.
Possibilities included scrapping the “Phase One” trade deal or intensifying Washington’s assault on mainland tech companies.
Yet Trump’s hospitalization “will likely make Beijing nervous,” Hirson says. “The prospect of Trump personally falling victim to what he has called the ‘China virus’ has the potential to deepen animosity toward China among the president’s base.”
If the virus were to have a noteworthy impact on the president’s health and Trump’s re-election campaign, strong retaliation is assured.
As Hirson sees it, the “biggest risks would probably come after the election, should Biden win, in which case the Trump administration would have further reason to push through tough actions before it leaves office. And, of course, should the president face severe health consequences from the virus, the hostility toward China among his base would almost surely be more intense and more durable.”
The list of Asian red lines Trump might cross in a second term is as frightening as it is expansive.
Might Trump devalue the dollar or default on a US debt heading toward $27 trillion? Might he recognize Taiwan? Might Trump send aircraft carriers to the South China Sea?
Might he pull all US troops out of Japan and/or South Korea? Might Trump open a US embassy in Pyongyang and normalize trade relations with Kim Jong Un in exchange for beachfront property for his kids? War with Iran?
Nothing seems off the table in a potential second Trump term. Or, for that matter, in the run-up to November 3. With four weeks to go, nothing is certain. Fasten those seatbelts.