As we appear to have moved past the “contested US election” scenario – although President Donald Trump’s team, at the time of writing, continues with legal battles in some states – President-elect Joe Biden  is quickly sketching out his transition plans and early key staff appointments for his forthcoming administration. Some have argued the Biden administration will try to turn back the clock and replicate former president Barack Obama’s “pivot to Asia”, while others fear that without Trump’s bombastic approach to China, the US will be seen as “weaker” in the Asia-Pacific. 

Both these perspectives, we think, are too simplistic. Not only has Asia changed significantly since Obama left office, but the US’s post-Trump, post-COVID-19 population is sicker, poorer, more bitterly divided and more isolationist than it has been in years. In light of this, the incoming president is aware that an entirely new playbook is needed for US foreign policy, including engagement with Asia.

First things first

Biden is keen to show the region that, as he put it in his first calls to leaders of Japan, South Korea and Australia, “America is back in the game”. We expect him to retain a robust military presence in the region, but also have a renewed focus on a strengthened diplomatic and economic presence by rebuilding bilateral relationships and alliances. Watch for a visible increase in the size and seniority of the US presence at regional summits, and the quick filling of key positions, including starting to post Ambassadors to locations – such as Singapore – that haven’t had one for the past four years. There is speculation that Biden may even create an “Asia czar” as a single point person to coordinate Asia policy. 

We are also expecting re-engagement on trade. The US has no role in the recently approved Regional Comprehensive Economic Partnership (RCEP) or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), but Biden’s team of seasoned diplomats are keenly aware that participating in the rules-setting agenda around trade is a key element of political and economic engagement. While domestic issues are clearly Biden’s top priority, and wide-ranging free-trade agreements are very unpopular at home, there may be room for small initial steps. The US may in time even re-visit the CPTPP – particularly if Biden names former TPP negotiator Wendy Cutler to a senior role, who has stated that the US might start with “interim sectoral deals” – though it will likely first engage CPTPP member countries on narrower issues, such as digital trade, medical supplies or green technology. 

The key issue is, of course, China. While the hardening of the US-China relationship is now a structural feature of US foreign policy, Biden has indicated he’ll be less transactional and more strategic. This doesn’t just mean ditching the blustery tweets, but suggests an overall more nuanced approach that combines behind-the-scenes negotiations with outcomes that are more clearly measurable. As his advisors cite, the overarching position is to both “compete where we must” with Beijing through alliances with key stakeholders, and “cooperate where we can” on issues like climate change and preparedness for future pandemics. 

Biden’s team has indicated that competition with China will be “selective” not “wholesale”, noting that the Phase 1 trade deal negotiated under Trump hasn’t delivered for the US, while the most critical issues – such as market access and intellectual property rights – were left to Phase 2. So, while we don’t expect a large-scale rollback of existing tariffs, we don’t expect further tariffs and may even see some targeted reversals if these facilitate negotiations on broader issues. 

We do however expect a much heavier focus on technology competition. Transition insiders have noted that the US has to do more than just “block China”; it needs massive investment in its own domestic ABCD (AI, Blockchain, cloud computing and data analytics) capabilities, which have been outlined as part of Biden’s “Build Back Better” strategy. Against this backdrop, we anticipate heightened risks of retaliatory regulatory action for US tech firms operating in China, and have advised many companies on how to future-proof their operations; helping them ensure their compliance programmes, government relations initiatives, and methods for anticipating and handling possible sanctions and reputational risks are robust and fit-for-purpose. Companies should focus much more on deepening their understanding and mitigating their risk exposure in China as the US “races to the top” in terms of industrial technology policy.

In South-East Asia, we don’t expect Biden to keep Vietnam on the bench for trade-related violations. The outgoing administration recently threatened to investigate Vietnam for currency manipulation, stemming from the fact its trade surplus with the US has grown nearly 40% over the past year, in the wake of supply chains shifting from China. Given Biden’s interest in resetting relationships, we don’t expect further hardening of this position. Meanwhile, businesses can expect to see the re-introduction of so-called “US values”, meaning that environmental, social and governance (ESG) issues – such as labour rights, anti-corruption and sustainability – will have a renewed prominence.

What are businesses most concerned about? 

Now the transition has begun, our clients in Asia are watching for its effect on market certainty, especially after four years of erratic US policy in the region. As one Western business leader shared, “Japan, South Korea and India are three of our largest markets, and China is our largest. With the constant geopolitics, it’s very hard to navigate our business”. As another US manufacturing client with a large China presence told me: “There has just been so much noise. It is very hard to know what we as a business should actually pay attention to, and to action”. 

However, the most pressing issue right now is of course COVID-19. Even if some companies in Asia have returned to a certain level of normalcy and profit, business is still weak in various markets, and almost every sector has had to manage through a serious crisis. While we have very promising news on vaccines, a sustained return to more normal operations – especially in the parts of this region where healthcare infrastructure is particularly poor – remains some way off. 

At the same time, most companies we speak with in Asia are worried about how the virus is ripping through the US, with which almost all have business interdependencies. Our clients want to know: How devastating will COVID-19 be in the US and how serious will the ultimate damage be to the US economy? Will a divided Congress undermine Biden’s ability to address the virus and pass a stimulus package that fosters a sustained recovery of both US consumer demand and outbound foreign investment? To what extent can Biden address deep political and social divisions, or will we see continued polarisation and possibly domestic unrest that unnerves markets? And, more broadly, if the US needs to remain inwardly focused, how can it underpin a robust, rules-based international business climate – a task made ever more urgent here by Beijing’s assertiveness? They know that – no matter Biden’s intentions – the US will only be able to get “back in the game” in Asia once it can effectively tackle COVID-19 at home.

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