12 September 2020

The impact of the US presidential election on Asia

This year’s contest will result in two vastly contrasting outcomes for the region

Photo by cottonbro from Pexels

By Holly Huang

For all the bluster and seemingly barbaric campaigning currently happening in the US, people around the world are wondering just what four more years of Republican President Donald Trump in office might look like — versus what is his Democratic rival Joe Biden could bring.

In short, there are genuine winners and losers in Asia, irrespective of which candidate will win on November 3.

Uncertainty and market volatility

The likelihood that we will not know the outcome of this event for weeks if not months after the election is potentially troubling. Unless there is a clear-cut winner of the Electoral College, expect there to be political fireworks. Both candidates will claim victory. An almighty legal battle looms.

An added legal wrangling will be the role of US Congress and the US Supreme Court. On election night, its plausible that both the House of Representatives and Senate will be controlled by the Democrats, yet the Supreme Court will be controlled by the Republicans. Neither party will likely give an inch.

The impasse will result in high market volatility, fuelled by statements and actions made by one party, only to be countered by the other. Asian markets won’t be immune to this instability.

In the event that one candidate wins outright, however, matters are simpler.

Under Trump, Asia ex-China prospers (and loses)

Prior the advent of COVID-19 earlier this year, global trade tensions dominated the Trump presidency.

In the run up to his election, he promised tough action not only on China, but with other nations he deemed to be taking advantage of the US’s precarious trade deficit with these economies. Singapore was famously labelled as being such a place just days prior to election night.

If President Trump is successful, expect more trade tension with China, as promised at rallies held recently in economically deteriorating states in the Midwest and South.

As far as Asia is concerned, this isn’t all bad. For sure, China will bear the brunt of these measures but its economy is not as reliant on the US as the US’s is on China. Plus, China’s manufacturing footprint reaches most economies globally, and is therefore more resilient than the US to global shocks. The way it bounced back from the economic abyss caused by the ongoing pandemic is testament to this.

US companies will likely shift to other low-cost manufacturing hubs for everyday household goods, and the region has many of them: Malaysia, Indonesia, Thailand and even Myanmar — the list is seemingly endless. For higher value goods, places like Singapore, South Korea and Taiwan will probably benefit in some way.

However, the latter group, three of the four Asian Tigers, will also lose out due to their supply chains being tied to both the US and China. Such a win-win scenario will likely be cancelled out by the lose-lose hostilities shared between the world’s two largest economies.

Under Biden, high-value industries seek greater Asia exposure

Biden has been less combative in his stance with China, and has indicated that his real problem with the Middle Kingdom is its aggressive military build-up and claim to swathes of the South China Sea. He is also keen to see US technology secrets kept far from the eyes of Chinese rivals.

Just how US technology executives genuinely feel about Biden is uncertain. For sure, the vast majority of those running Silicon Valley are Democrats, but Biden’s proposed higher taxes could prove costly for Apple and company. Similarly, increased regulation (and subsequently costs) applied to energy and healthcare companies will be a cause of concern for these industries.

Biden has promised to keep as many jobs and industries onshore in the US, and to rebuild the country’s manufacturing base, which despite President Trump’s ‘Make America Great Again’ slogan has worsened over the past four years. While committed to helping to rebuild the US economy, companies from these sectors will probably still look overseas to capitalise on Asia’s burgeoning and increasingly consumer-driven economies, and take advantage of the region’s comparatively low cost of labour and innovation when compared to the US.

The lure of Asia remains highly appealing to American MNCs. This really could create a win-win for both the US and its trading partners in Asia.

Anticipated market moves

Both scenarios will have implications for the global markets. US equities will probably continue to rise under President Trump, while it will likely be more muted under Biden. That said, a cooler stock market isn’t a bad thing for investors for a long list of reasons, whether they are based in Asia or the US.

Trump’s ‘America first’ mantra has proved good for the US dollar, so expect this to continue if he wins. Biden’s less bombastic approach might mute the greenback, which likewise isn’t bad for emerging market debt and local currencies across the region.

Both candidates have pledged to invest in US infrastructure. Expect a few key winners most notably from the materials sector. Biden’s drive for a higher minimum wage could see the stock prices of consumer discretionary businesses rise, where there is much growth potential given how sector stocks have dropped since the onset of Covid in America. This is also good for the companies that make such items in Asia.

And lastly, under a Biden presidency, expect interest in ESG investing to grow yet further — the former Vice President’s US$2 trillion Green New Deal will significantly benefit the CleanTech sector and the asset managers who invest in it.

An exciting and highly eventful November 3 awaits.

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