‘Bidenomics’ will be a net plus for Asia

Not Obama 2.0: A Biden administration will tilt further to the left, being more fiscally expansionary, pro-regulation and more vigilant and pro-active in the area of trade policy. — AFP

ANALYSTS have started putting out reports on “Bidenomics” and with good reason. Judging from the opinion polls, there’s a fair chance – though it’s by no means certain – that Democratic candidate Joe Biden will win the US presidential election on Nov 3.

So it’s worth speculating on what Bidenomics will be about and its possible impact on Asia, which could be far-reaching.

Under centrist administrations, there is often a degree of continuity in US economic policy, as there was, for example, from the George HW Bush administration to the Clinton administration, and from the latter to the George W. Bush administration, and even to the Obama administration.

But in the case of the upcoming election, if there is a transition, it will not be from one centrist administration to another; it will be a sizeable swing from a radically unilateralist, conservative and pro-plutocratic regime to what will probably be the most left-of-centre, pro-regulation and fiscally expansionary government since that of Franklin D. Roosevelt in the 1930s.

Just as the Trump administration has spent much of the past four years tearing up the economic and social legacy of the current president’s predecessor, a Biden administration will sweep away a lot of the Trump-era policies, from taxes and subsidies to regulations, global trade and climate change.

US Democrats have almost always been sympathetic to taxing and spending. But with Covid-19, this part of their agenda has become supercharged in the face of rising joblessness, inequality and corporate distress, especially among small- and medium-sized enterprises.

Tax more, spend more

A Biden administration would, if it has its way, hike the top corporate tax rate from 21% to 28%, partially reversing the reduction (from 35% to 21%) implemented by the Trump administration in 2017, and raise the minimum tax on profits of foreign subsidiaries of US firms.

It will further impose a 10% “offshoring penalty surtax” on profits made by US companies overseas for sales back to the US.

On personal taxes, it would reverse the Trump tax cuts on those earning over US$400,000 (RM1.7mil) a year and, for good measure, tax capital gains and dividends for those making more than US$1mil (RM4.2mil).

These tax hikes will provide some of the revenue to fund a massive US$7.3 trillion (RM30.3 trillion) planned increase in public spending over the next decade on infrastructure, green energy, healthcare, research and development, education and other social services.

A Trump administration would also boost infrastructure spending (although by less than a Biden one), but keep taxes low and cut several social services.

Under either administration, US public debt would soar from just over 100% of gross domestic product now to 125% by 2030 under the Trump proposals, and close to 130% under the Biden proposals, according to the independent Committee for a Responsible Federal Budget.

One important caveat: The ultimate size of the stimulus would depend not only on which administration takes office, but also the composition of Congress, and particularly the Senate, which could swing either way.

A Biden administration plus a Senate with a Democratic majority would yield the maximum stimulus. But if the Senate retains its Republican majority, the stimulus would be watered down.

Moody’s Analytics, which attaches a 40% probability to this “Biden-lite” outcome, suggests that both tax increases and spending proposals would be cut by slightly more than half.

Even so, fiscal deficits and public debt (which is already the highest since World War II) would soar. Much of the debt would be monetised by the Federal Reserve, which has pledged to keep interest rates at near zero till 2023.

US economic growth would get a boost, even under the Biden-lite scenario, to 5.8% next year, the fastest since 1984, according to Oxford Economics.

For Asian economies, this would be positive on at least two counts.

The US economy would suck in more imports, benefiting Asian exporters. Rising US deficits and debts, largely monetised by the Fed, could also be negative (or at best, neutral) for the US dollar, which would ease dollar funding pressures facing emerging economies and allow them to continue keeping their own interest rates low, thereby aiding their economic recoveries.

One negative effect, however, will arise from the Biden proposals to raise taxes on profits of foreign subsidiaries of US companies and impose offshore tax penalties – it would, to some extent, discourage them from expanding overseas.

A massive “Buy American” programme – another pet policy goal of the Biden Democrats that is essentially an import substitution strategy – would also be a net negative for Asian exporters.

Differently tough on trade

What will be of particular interest to Asian countries (but also others) will be a Biden administration trade policy. The Democratic Party platform indicates it will not resort to “self-defeating, unilateral tariff wars” – which could mean a phased unwinding of the Trump tariffs on imports from China as well as the European Union and others.

That said, a Biden administration will be tougher on trade, especially vis-a-vis China, than the Obama administration was; today’s Democratic Party is no less hawkish on China’s trade policies than the Trump administration.

The party platform pledges to “protect the American worker from unfair trade practices by the Chinese government, including currency manipulation and benefiting from a misaligned exchange rate with the dollar, illegal subsidies, and theft of intellectual property”.

But a Biden administration will use different mechanisms to do this.

“We will rally friends and allies across the world to push back against China or any other country’s attempts to undermine international norms, ” the platform points out, which could mean aligning with the EU and some Asian countries to jointly push for more reciprocity in trade with China, rather than acting unilaterally.It might also seek a more collective approach to dealing with Chinese technology companies such as Huawei, on which many Democrats share the Trump administration’s suspicions of security risks.

Some scholars suggest that it might, in fact, be even less tolerant of countries – including those in Asean – adopting Huawei’s networking technologies.

However, it would be discriminating in picking its fights with China, collaborating with Beijing on issues such as public health

and the environment. It will most likely rejoin the World Health Organisation and the Paris Agreement on climate change, from which the Trump administration exited.

More multilateral

Being more sympathetic to multilateral institutions, a Biden administration might also resurrect the World Trade Organisation (WTO) by nominating judges to its appellate body (which the Trump administration has refused to do, thereby paralysing the institution), although it is unlikely to rely purely on the WTO to resolve its trade disputes, especially with China.

A reinvigorated WTO would be welcomed by all countries, including China, but especially by smaller nations which would regain some leverage in their trade disputes with major economic powers.

Under a president Biden, the US might also rejoin the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the 11-nation trade grouping that succeeded the Trans-Pacific Partnership (TPP), a brainchild of president Barack Obama, from which the Trump administration withdrew the United States in 2017.

But there would be conditions.

During a presidential primary debate in the middle of last year, Mr Biden pointed out: “I would not join the TPP as it was initially put forward. I would insist that we renegotiate pieces of that with the Pacific nations... so that we could bring them together to hold China accountable.”

The conditions would probably include tougher environmental and labour standards, which would appeal to the Democratic Party’s base.

While the member countries of the CPTPP have indicated that the deal is not up for renegotiation, they have made allowances for the US to rejoin the reconfigured grouping and would probably welcome it back, even at the cost

of adding a few clauses to the agreement. This would provide a further boost to US-Asian trade.

A Biden administration might also resort to a collaborative approach to counter China’s Belt and Road initiative (BRI), a multi-trillion-dollar infrastructure programme spanning several countries in Asia, Africa and Europe.

At the Indo-Pacific Business Forum in Thailand last November, the US, Japan and Australia announced an initiative called the Blue Dot Network, which seeks to certify infrastructure projects worldwide that meet high standards of transparency, sustainability and developmental impact. The hope is to attract investments from private investors such as pension funds and insurance companies that manage trillions of dollars and seek long-term returns.

This would open the way for more US, Japanese and Australian investments in Asian infrastructure in particular – although other countries could join in too – which might give China’s BRI some competition and force it to raise its own standards of transparency and sustainability, all of which would benefit the region.

Although the Blue Dot Network was initiated during the Trump administration, its collaborative approach, as well as its goals,

are likely to appeal to Biden Democrats, who seek institutional solutions and partnerships to deal with economic challenges.

A Biden administration will not be an Obama administration version 2.0. It will tilt further to the left, being more fiscally expansionary, pro-regulation and more vigilant and pro-active in the area of trade policy.

But after four years of the Trump administration, Bidenomics will usher in a less capricious, more predictable and multilateral approach to economic policymaking, which Asian countries would welcome. — The Straits Times/ANN

Vikram Khanna is associate editor at The Straits Times, a member of the Asia News Network (ANN) which is an alliance of 24 news media entities. The Asian Editors Circle is a series of commentaries by editors and contributors of ANN.

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