High stakes

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The months leading up to the US presidential election in November will be crucial for the world, and especially for Asia. Dennis Unkovic explores the cards being dealt in political and legal terms, and warns the stakes could not be higher

On Tuesday, 3 November 2020, America will hold its next presidential election. Donald Trump (Republican) will be seeking a second four-year term as president of the United States. His opponent, Joseph Biden (Democrat), is a former US vice president, long-time US senator (Delaware), and Washington DC insider. Each candidate offers voters a starkly different vision for America’s future. Therefore, the stakes could not be higher for America and the rest of the world, particularly Asia. This article will examine what to watch for over the next several months leading up to this crucial election.

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Dennis Unkovic

There are several reasons why this particular presidential race is so critically important. First, the Trump administration during its first three-and-a-half years consistently prioritized American interests over the common interests of its traditional allies under the mantra: Make America great again (MAGA). Is this representative of future American policy?

Second, if Trump is re-elected, 2020 will mark a historical turning point for American foreign policy when – after 75 years – America switches its prior global approach to a more bilateral approach.

Third, countries throughout Asia, and especially China, will be directly affected in a variety of ways, depending on whether Trump is re-elected or Biden becomes the next president.

US FOREIGN POLICY EVOLUTION

To understand America, you need to understand its history. Since its very beginning, America as a nation has exhibited a tendency to favour isolationism. With the exception of its belated entry into the First World War, America pursued a largely isolationist foreign policy, until the advent of the Second World War. When it ended, America found itself essentially the one country with a functioning economy that had not been devastated.

President Truman surprised the American people at the time when he promoted the Marshall Plan as America’s policy to rebuild Europe (including Germany, America’s wartime enemy). Since then, America, under both Republican and Democratic presidents, has adhered to a broad-based foreign policy that embraced multinationalism as the best path to rejuvenate and later continuously grow the global economy.

The UN, the Asian Development Bank, the World Health Organization (WHO), the World Bank, and the World Trade Organization (WTO) are just a handful of dozens of international organizations that America supported politically and substantially funded for decades.

With the rapid and unexpected collapse of the Soviet Bloc in 1991, America found itself in a unique position as the world’s leading economy, with few serious economic, military or political rivals. This provided an irresistible incentive for American companies to aggressively expand internationally. This involved outsourcing those companies’ US-based manufacturing locations to Asia because they wanted to access inexpensive sources of manufactured goods.

The major beneficiary of this outsourcing was China. However, the outsourcing movement resulted in a significant erosion of America’s traditional manufacturing base. Millions of US manufacturing jobs were lost, which led growing numbers of Americans to question whether America’s foray into outsourcing overseas made sense.

Eventually the frustration of those displaced workers translated into a powerful political movement that captured enough key electoral states to guarantee Donald Trump’s election. Trump deliberately sought out their support during his 2016 campaign, when he fixated on his promise to “make America great again”. His MAGA strategy resonated with millions of Americans and Trump defeated his Democratic rival, Hilary Clinton, to win the presidency.

THE TRUMP YEARS

No one can ever say Trump failed to give advance notice to both his supporters and opponents about how he intended to conduct American foreign policy if he made it to the White House. He also hinted at a new direction during his inaugural address in January, 2017. Just a few weeks after taking the oath of office, Trump rejected America’s participation in the Transpacific Partnership (TPP), which had been carefully put together by his predecessor, Barack Obama.

In the next three years, Trump continued to veer away from multilateralism. An early target was the North American Free Trade Agreement (NAFTA) – now known as USMCA, or the United States Mexico Canada Agreement) – which, after declaring it a “terrible trade deal”, Trump renegotiated with Mexico and Canada.

At one point, Trump questioned the value of NATO to America, and later proceeded to either officially or unofficially decrease funding for other multilateral organizations. The most recent high-profile withdrawal was from the WHO. In short, under Trump, US foreign policy has continually moved from a multilateral to a bilateral approach.

If Trump is re-elected for a second term, you will see an even more bilateral foreign policy emerge. On the other hand, you can expect America will return to a more traditional multilateral approach to economic, military and public health issues if Biden wins in November.

WHAT DOES IT MEAN FOR ASIA?

For those living in Asia, there are four key trends to closely monitor in the months leading up to the November election.

Trend one: China and the US. Depending on the outcome of the next US presidential election, China has the most at stake. Early in his term, Trump publicly accused China of being an “unfair trader”. He argued China’s massive trade deficit with America was proof it was not following established trade rules. At one point, China’s trade deficit with America ballooned over US$300 billion for a 12-month period.

Because Trump viewed China as an economic threat to America, he imposed a series of escalating tariffs on billions of dollars of Chinese products destined for America. This seriously harmed China’s export-based economy, and so China retaliated with its own round of tariffs.

More recently, the Trump administration has begun to view China differently, and now sees China as a nation that is directly challenging America for world economic dominance. One key example is China’s massive Belt and Road Initiative (BRI) focused on Asia and Europe. In recent months, Trump has publicly blamed China’s failures to deal with covid-19 as the reason why the virus became a global pandemic.

Therefore, I predict Trump will focus much of his re-election campaign strategy on China, and argue that he is the best candidate to contain China and its growing global ambitions. This is likely to force Xi Jinping to respond. Neither leader wants to appear weak. Thus, China/US relations will be a central and emotional issue in November’s presidential election. Do not expect a new trade deal between China and the US in 2020.

Hong Kong, unfortunately, finds itself between the two global powers. Hong Kong, with its special trade status with America, has always been a favourite among both Republicans and Democrats in the US Congress who admire its unique democratic institutions.

China’s recent decision to impose a national security law on Hong Kong residents has given Trump a reason to suggest the US may, in retaliation, downgrade or remove its special trade relationship with Hong Kong. China responded to the Trump administration by criticizing the US for interfering with China’s sovereignty. I predict this will be debated as a high-profile issue during the presidential campaign.

Trend two: Multilateral v bilateral. As described throughout this article, I expect the Trump administration’s pursuit of bilateral US policies as opposed to relying on and funding multilateral organizations to accelerate in the coming months. In advocating his MAGA approach to foreign policy, Trump will appeal to national pride and urge Americans to rely on themselves.

The decision to withdraw from the WHO is a prime example. This should not come as a surprise to those who know the US, because Trump clearly understands America’s historical tendencies toward isolationism. Expect more focus in the coming months on bilateral negotiations in political and economic areas. For example, the Trump administration is now unilaterally reducing the number of US troops stationed in Europe who are part of NATO.

Trend three: National security interests. Both the Republican and Democratic parties are concerned about maintaining US national security. This is clearly a high priority for government policymakers. With the extremely high levels of unemployment in the US caused by covid-19, the political parties need to create ways to get unemployed Americans back to work.

Here are three examples of national security issues to watch for. First, the Committee on Foreign Investment in the United States (CFIUS) is the US government inter-agency group that has the power to approve or deny foreign investments in America and American companies, if US national security is involved. The CFIUS has recently strengthened the reach of its review/approval process. Proposed investments involving a Chinese party are receiving particularly close scrutiny, and this will continue.

Second, the US senate recently passed the Holding Foreign Companies Accountable Act, which could delist foreign companies sold on the US stock exchanges if those companies fail to allow US government auditors to review their books. For years, Chinese companies have strongly resisted such audits. While not yet passed by the US House of Representatives, this act has a good chance of becoming law this year.

Third, misuse and theft of the intellectual property of US companies in China remains a high priority. The two presidential candidates will need strong arguments throughout their campaigns as to why he is the best choice to protect America’s national security and leading technologies.

Trend four: The fractured global supply chain and Asia. The global supply chain is a complex mechanism that moves countless types of Asia-produced parts and components to the US and Europe. Unfortunately, covid-19 effectively fractured the global supply chain based in China. According to the South China Morning Post, more than 460,000 Chinese companies closed during the first three months of 2020, and many of these companies were directly involved in the global supply chain.

This massively disrupted manufacturing processes in China, and cannot be easily repaired. I predict many US companies that rely on China as their sole source for manufactured parts and components will decide to realign over the next 18 months. While some US companies will seek alternative suppliers in China, many will look to other countries for manufacturing.

There will be big winners throughout Southeast Asia. Countries such as Malaysia, Vietnam, the Philippines, Cambodia and, in a limited sense, Indonesia will find themselves as attractive locations to US companies looking to realign.

I also foresee India as in a prime position to take advantage of this trend. For five years, Indian Prime Minister Narendra Modi has been trying to transform India into a more attractive locale by improving investment laws for foreigners. This may be Modi’s chance. While in the past, India was best known for its call centres, a move toward outsourced manufacturing is possible because of India’s highly educated workforce and predominance of the English language. In North America, Mexico (now part of the negotiated USMCA) will also benefit from reshoring back from Asia.

The importance of reshoring manufacturing capabilities from Asia back to the US is popular with both Democratic and Republican congressional leaders. It can create jobs for the unemployed at home. There are already many bills before the US Congress to incentivize reshoring back to the US from Asia. Although both presidential candidates will argue the reasons why his approach is better, the bottom line is that it is inevitable that more manufacturing will reshore from Asia back to the US, no matter whether Trump or Biden is elected. I think few individuals in Asia truly understand the inevitability of this trend.

WHO WILL WIN?

Who will win the 2020 US presidential election? Even with countless debates and predictions, no one knows. While Trump’s approval ratings are now at a historic low for an incumbent president, he has, time and time again, exhibited his skill to home in on emotionally charged, high-profile political issues in order to inspire loyalty among his traditional political supporters.

In the end, the winner will depend on which Americans come out to vote. From now until November, with the global economy severely weakened due to the covid-19 pandemic, Asia should pay close attention, because the stakes this time are very, very high.

Dennis Unkovic is a partner at US law firm Meyer Unkovic & Scott. He has extensive experience in negotiating transactions, foreign and domestic, on international investments, and advising on inbound and outbound direct foreign investment projects. He works for both US companies and foreign entities with their international activities and investments, and has travelled to 64 countries in the past 35 years, with significant involvement in transactions in China, India, Japan, Korea and around Southeast Asia