Among the headaches that Donald Trump leaves to the elected president, Joe Biden is the backbone of Asia far from the American economic leadership.
As the White House threw all the political weapons in its arsenal at China, Xi Jinping opened up the Chinese economy to 14 other countries. The title of the newly signed Regional Comprehensive Economic Partnership, or RCEP, has a bit of hyperbole. This is a more loosely formulated, highly targeted sectoral pact, which unfortunately excludes India than another “global” one.
Yet the RCEP represents an infinitely greater victory for free trade than any of the limited bilateral pacts Trump signed. It will add about $ 200 billion annually to the world’s gross domestic product. It also comes as Japan and South Korea join China in the rarefied club of large economies stabilizing amid the fallout from Covid-19.
The real note to Biden’s new administration is that China has just formalized the extent to which the world will not wait for America to reverse Trump’s trade policy. He must hit the ground to keep Asia from doing without the US economy.
It is no exaggeration to say that “Beijing has successfully positioned itself at the center of the region’s trade and investment networks, ousting the United States as the main power in Asia-Pacific economic diplomacy.” , says Gavekal Research analyst Tom Miller.
Biden’s administration will inherit Trump’s ever-growing trade war, but he doesn’t need to continue it. Biden is a longtime multilateralist whose first impetus will be to host a series of summits with Chinese Xi Jinping, Japanese Yoshihide Suga and South Korean Moon Jae-in. Maybe even bring North Asian leaders together for trilateral talks at the White House.
There’s a limit to how much Biden can multitask. Trump is leaving behind a full-fledged coronavirus epidemic and huge economic fallout. Fractured nature of US politics could limit Biden’s own pivot at work with Asia, without sabotaging it.
Biden starts off with a soft power deficit. The only saving grace is that RCEP does not change the game as Beijing suggests. Of course, the bloc covers around 30% of the world’s gross domestic product and 2.2 billion people, making it a record achievement. But it is still unclear on the details and the mechanisms of application.
It will, in theory, eliminate tariffs and quotas on 65% of the goods traded, which in many ways makes RCEP less ambitious than the Trans-Pacific Partnership trade agreement. Even so, injecting the equivalent of Peru’s GDP into world markets every year is no small feat. It’s a tailwind that the United States won’t benefit from in early 2021.
The number one priority for Biden’s White House is to bring the coronavirus under control. The first wave saw American growth plunge to the depths of the Depression era. A second could hit demand and confidence even harder – and with less political leeway to stabilize growth. Washington’s debt has already passed the $ 27 trillion mark. And the Federal Reserve’s balance sheet has already passed $ 5 trillion Japanese-style.
Right off the bat, Biden needs to be careful with the dollar. Time will tell if Trump’s economic policies have seriously damaged the reserve currency. The same goes for the aggressive and opaque policies of the Fed, more consistent with developing countries than a power of the Group of Seven. The only way to explain Wall Street’s rallying to unprecedented highs in the midst of A single pandemic in a century is the Fed’s massive liquidity.
Count how it all fuels Xi’s long-term goals. One of them is to increase the role of the yuan in world trade and finance. The internationalization of the yuan, ironically, owed the Trump era a debt of gratitude. And the momentum is sure to keep Biden’s economics team on their toes.
So will the growing divergence between the growth trajectories of the United States and China. Morgan Stanley economist Takeshi Yamaguchi said the bank’s Chinese team “is looking to continue the recovery.” Diana Choyleva, Enodo Economics, adds: “Beijing has done ‘whatever it takes’ to bring about a V-shaped recovery.” Chances are the Chinese leadership will continue to do just that.
China is not out of the woods domestically. Yongcheng Coal and Electricity Holding’s recent $ 151 million default highlights the cracks lurking beneath the surface. The turbulence in credit markets is compounded by Beijing’s crackdown on internet companies like Alibaba and Tencent and financial giants like Ant Group.
Yet 2020 can be remembered as the year Washington ceded the future to China. New data from the International Monetary Fund shows that China is on track to overtake 56 countries on per capita income tables by 2025. By then, China will rank 70th, bringing it closer to orbit of the richest third of nations.
Trump’s advisers should have heeded Friedrich Nietzsche’s argument that what doesn’t destroy you makes you stronger. The German philosopher’s view certainly seems to be justified by Xi’s economy, more than three years after Trump’s campaign to hamper China Inc. began.
Although Trump’s attacks on Huawei Technologies, ZTE Corp. and other national champions have drawn financial blood, Xi’s economy is spreading its wings and gaining altitude. The one Biden inherits leaves $ 200 billion on the table in the worst case scenario.