WITH Asian economies starting to show signs of recovery from the pandemic-induced recession, it is crucial that the policies of the newly elected United States president do not disrupt this momentum.
Any further trade tensions or confrontational stand against China will cause uncertainties.
While president Donald Trump had adopted an aggressive stand towards China, politically, can it be the easiest thing for the next president to maintain?
Given anti-China sentiment in the US, trade war policies are expected to be continued. Presidential candidate Joe Biden’s style may be more towards negotiations but ultimately, would his approach be even more multilateral than Trump?
A victorious Trump is likely to double down on trade war policies, but it is unlikely to be better with Biden who may mount a campaign of reapproachment with Europe against China.
Foreign policy for Trump stresses on, among other things, an “America First” stance in trade, while Biden wants to “restore dignified leadership at home and respected leadership on the world stage”.
Among the early recoveries in Asia, exports from South Korea increased 7.7% to US$48.05bil in September from a year earlier; consumer confidence jumped to 91.6 points in October from 79.4 in September.
Taiwan’s gross domestic product grew 3.3% in the third quarter from a year earlier, against a decline of 0.58% in the second quarter.
The recession in Hong Kong had eased in the third quarter, shrinking by 3.4% from a year earlier, against a drop of 9.0% in the second quarter.
The overall picture for the longer term is quite complicated. While Trump has been hard on China, he is seen to be more business friendly and less vocal about imposing new taxes in the US.
In relation to taxes, Biden sees that ‘it’s about time they (any American making over US$400,000 annually) start paying a fair share of the economic responsibility we have. “The very wealthy should pay a fair share – corporations should pay a fair share, ” Biden, who hopes to raise US$280bil over the next decade, was quoted as saying in an ABC interview.
Not imposing taxes may buy time for the US economy, that has been battered by coronavirus infections, to heal but in the long term, it may be more damaging.
The effects of cumulative deficits will return to weigh on the country. With the lockdown and substantial spending following the pandemic, the US Congressional Budget Office had projected in April that the deficit for fiscal year 2020 would hit US$3.7 trillion.
For fiscal year 2019, that deficit was US$984bil against US$779bil in the previous year.
A Trump win should be positive for US markets in the longer term, as the same corporate-friendly principles should be maintained with tax breaks in place, and a low interest rate environment.
In the short term, a Biden win may result in a knee-jerk, positive reaction in the markets, but over the longer term, his more people-friendly and less corporate friendly policies may see markets lose momentum and possibly reverse, said Etiqa Insurance & Takaful chief strategy officer Chris Eng.
The stock market has generally performed better when Democrats are presidents but ultimately, it is, among other things, economic conditions and sentiment, earnings growth and interest rates that affect markets on the whole.
Since 1900, US$10,000 invested in the Dow Jones Industrial Average during the tenure of Republican presidents would have grown to US$100,000, while under Democrat presidents, that would have hit US$430,000, said the Financial Times.
If that US$10,000 invested in 1900 had stayed in the market throughout, regardless of which party was in power, it would be worth US$4.3mil today.
For the region, a Trump win may be advantageous, as under the trade war and his “America First” policy, he is “chasing away” companies from China; hence, they need to find a new home.
Asean, in particular, is expected to be the fastest-growing region; naturally, more companies relocating from China will come here.
“For the shipping trade, we will do well (if companies relocate and trade here), as Malaysia is the main shipping hub for the region, ’’ said MMC group managing director Datuk Seri Che Khalib Mohamad Noh.
Banks can be indirectly impacted if their customers are affected, for example, in the case of the ban on palm oil imports from a major Malaysian plantation company, by the US Customs and Border Protection agency, said Affin Islamic Bank CEO Nazlee Khalifah.
Unfriendly and aggressive policies affect countries that are struggling with Covid-19-related effects.
In terms of markets, so long as there is certainty in politics and policies, they will find their own themes, said Areca Capital CEO Danny Wong.
On economies, the effectiveness of anti-virus measures taken by governments and the people, may be more concerning at this stage, than the outcome of the US elections.
Yap Leng Kuen is the former business editor of StarBiz. The views expressed here are the writer’s own.
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