Among the headaches Donald Trump leaves for President-elect Joe Biden, the Asias are moving away from American economic leadership.
As the White House threw all the political weapons in its arsenal at China, Xi Jinping was open throw China’s economy in 14 other countries. The title of the newly signed Regional Comprehensive Economic Partnership, or RCEP, has a bit of hyperbole. Its sectoral pact, formulated in a more vague, highly targeted manner, unfortunately excludes India rather than a comprehensive agreement.
Yet the RCEP represents an infinitely greater victory for free trade than any of the limited bilateral pacts Trump signed. This will add an estimate 200 billion dollars to world gross domestic product per year. It also comes like Japan and South Korea join China in the rarefied club of major economies that are stabilizing amid the fallout from Covid-19.
The real memo to Bidens’ new government is that China has just formalized the extent to which the world will not wait for America to roll back Trumps trade policies. 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, said analyst Tom Miller from Gavekal Research.
The Bidens 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 Korea 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 Bidens’ pivot to 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. However, pumping the equivalent of Peru’s GDP on world markets each year is no small thing. It’s a tailwind that the United States won’t benefit from in early 2021.
The number one priority for the Bidens 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 exceeded $ 27 trillion. And the federal reserve balance has already exceeded $ 5 trillion in Japan.
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 Xis’ long term goals. The first is to increase the role of the yuan in global trade and finance. Internationalization of the yuan, ironically, owes the Trump era a debt of gratitude. And the momentum will not fail to keep Bidens’ economic 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 Chinese banking team was looking to continue the recovery. Adds Diana Choyleva to Enodo Economics: Beijing has done whatever it takes to stimulate a V-shaped recovery. Chances are the Chinese leaders will continue to do just that.
China is not out of the woods at the national level. Yongcheng Coal and Electricity Holding’s recent $ 151 million default highlights the cracks hidden under 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 the verge of overtaking 56 countries on the per capita income charts by 2025. By then, China will rank 70th, bringing it closer to the orbit of the richest third of nations.
Trump’s advisers should have heard Friedrich Nietzsches’ argument that what doesn’t destroy you makes you stronger. The point of view of the German philosophers certainly seems to be justified by Xis saving three years and more in the Trumps campaign to hinder China Inc.
Although Trump’s attacks on Huawei Technologies, ZTE Corp. and other national champions have drawn financial blood, Xis’ economy is spreading its wings and gaining altitude. The one Biden inherits leaves $ 200 billion on the table in the worst case scenario.
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