Why the US footprint in Asia looks set to shrink

The blow to globalisation dealt by the coronavirus will be exacerbated by US presidential candidates running on protectionist platforms. The result may be a reduction of American influence in Asia, with China gaining ground

Anson Au

Published: 6:30am, 1 Sep 2020

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Two events are shaking up the global order. The first is the coronavirus, which is raging across nations worldwide, leaving in its wake sealed national borders, major disruptions to trade routes and supply chains on life support.

According to the US Census Bureau, the total value of imports to the US from China, Japan and South Korea declined by around 17 per cent for the first half of 2020 compared to that of 2019. In some cases like Singapore, the historical trade surplus with the United States has become a deficit.

The second event is the US presidential election in November. Having just secured the Republican Party nomination, President Donald Trump is stepping up his “America first” platform. After establishing new tariffs on Canadian imports of aluminium in early August, Trump has moved to ban Chinese companies like WeChat and took to Facebook to accuse China of wanting Democratic Party candidate Joe Biden to win the presidential election, claiming this would allow China to “own our country, and our record setting stock markets would literally crash”.

Meanwhile, Biden has similarly been touting “buy American” economic rules for government projects and anti-China rhetoric in a bid to win over Trump’s nationalistic support base. A Pew Research Centre report released on July 30 found that 73 per cent of American adults have an unfavourable view of China, a historic high, with 78 per cent feeling the Chinese government is mostly to blame for the pandemic.

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The coronavirus hammering global trade and both US presidential candidates capitalising on xenophobic public opinion with protectionist platforms make for a volatile global order. The combination of these events signals a turn away from globalisation towards regionalism in the Asia-Pacific, led by a strengthening China and a retreating US.

The bridges that once held China and the US together as the twin pillars of a global economy are eroding quickly. For the past couple of years, China has been selling more of its stake in US Treasuries. By June 2020, China had cut its Treasury holdings by 3 per cent year on year. Meanwhile, China’s central bank has begun testing its new digital currency, the Digital Currency/Electronic Payment.

Combined, these trends could signal a shift in Asia from the US dollar to the Chinese renminbi as an international reserve currency, whose digitalisation promises lower transaction costs, faster transaction times and lower foreign currency exposure risks owing to sudden currency fluctuations.

Moreover, the new digital currency will add to the appeal of China’s Belt and Road Initiative by lubricating trade and could encourage other Asian nations seeking to digitise their own currencies to assert greater control over their financial systems.

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Asia-Pacific trade will also pivot more towards China as it gains greater leverage in regional dealings. For instance, in June, South Korea’s exports to the US and Canada declined by 8.3 per cent and 27.4 per cent respectively year on year, in addition to further falls to most of Europe, Oceania, Asia, and Africa.

South Korea’s exports increased to a select few countries only, with China at the top, with growth of around 9.6 per cent, making it South Korea’s largest trade partner. Its exports to China were nearly double those to the US. China is also a leading export destination for other countries in the region, such as Japan.

While China looks to strengthens the penetration of its currency, the US dollar has been on the decline. Domestically, the US Federal Reserve continues to devalue the dollar by slashing interest rates and printing money had over fist, which will only increase inflation.

While the collapse of the US dollar is unlikely, the swift rise of US debt, to over 107 per cent of gross domestic product, and Trump’s successive cuts to health programmes for millions of workers in three out of the four years he has been in office, are warning signs of a slumping domestic economy.

Trade talks ‘only point of light’ keeping US-China ties from imploding

US dealings in Asia face further volatility, given that one of the largest American export categories to Asia-Pacific Economic Cooperation countries is fossil fuels. Deloitte’s 2020 oil and gas industry outlook forecasts serious challenges ahead, including a decline in global demand, complications from new regulatory changes on emissions like those by the International Maritime Organisation, and an ongoing shift towards renewable energy sources.

Thus, the US president, whether that is Trump or Biden, will be preoccupied with the daunting challenges of repairing the economic and social damage wrought on the country and its position in the world.

In 1960, then-British prime minister Harold Macmillan said in his famous Wind of Change speech before South Africa’s Parliament: “The wind of change is blowing through this continent. Whether we like it or not, this growth of national consciousness is a political fact.” What followed was a tectonic shift in the world order as African nations shed their colonial chains.

The events of 2020 have invited winds of change not felt in decades. They have also stimulated a new consciousness on both sides of the Pacific, towards a vision of an Asia-Pacific with a smaller American footprint.

Anson Au is a PhD candidate in sociology at the University of Toronto

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