When it comes to US-China trade, the new president’s changes may be more style than substance. But his policies have implications for Asian markets.
There are two ways of looking at this: the direct engagement of the US with Asian governments and economies; and the knock-on effect to Asian markets from US domestic positions.
From trade to security
On the first front, China is the obvious place to start, since the US-China trade war became one of the signature policies of the Trump administration. It is tempting to imagine a radically different relationship between the two countries under Biden, and certainly there is an expectation of a more publicly cordial approach, with fewer unpredictable statements.
But in terms of policy, there might not be that much of a difference. As The Diplomat puts it: “A hawkish position on China is probably the closest thing that US politics now has to an issue of bipartisan concord.”1 In the time since Biden served as vice-president to Obama, American public and political opinion has turned against China somewhat, principally out of concern about its strength and ambition. There is very little to gain for Biden in suddenly turning soft or conciliatory with China.
That being said, it is likely that a Biden presidency is going to be better for the global trade environment, Asia included. Biden is known as a multilateralist in a way that Trump never was, and his trust in the institutions of international trade is likely to help to resolve trade disputes.
So even if it isn’t ratified in trade agreements, there is some hope that Biden will, like Obama before him, seek to pivot to Asia. In practice, this will likely mean security ties with Japan, Australia, India and some ASEAN countries, rather than trade and investment explicitly, but it is entirely possible that one can lead to the other. Meanwhile intra-Asian trade will continue to grow.
Implications for asset classes
Then there is the question of what happens to Asian asset classes as a response to Biden’s domestic policies and the health of the US.
One common view is that emerging market debt will be well positioned as investors move to re-risk their portfolios in pursuit of yield, assuming that US yields remain reasonably low as the country recovers from the pandemic, and that fear of further damage to the global economy recedes. Chinese bonds, in particular, offer a considerable yield differential over US Treasuries.