Deglobalisation to continue despite Biden victory - Capital Economics
Emerging Asia Economics

Deglobalisation to continue despite Biden victory

Emerging Asia Economics Update
Written by Gareth Leather
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Joe Biden is likely to take a different approach to trade relations than Donald Trump, but his election will not reinvigorate globalisation, which has stalled over recent years. This will act as a headwind for the region’s poorer economies.

  • Joe Biden is likely to take a different approach to trade relations than Donald Trump, but his election will not reinvigorate globalisation, which has stalled over recent years. This will act as a headwind for the region’s poorer economies.
  • Joe Biden looks to have won the US presidency, but a split Congress means while a fiscal stimulus is still possible, it will be smaller than looked likely under the “blue wave” scenario. Asian exporters shouldn’t expect to benefit from a sudden jump in US demand.
  • Biden is likely to take a different approach to trade relations than Trump. While tensions between the US and China are likely to remain heightened, Biden’s approach to the rest of the region is likely to be more conciliatory and the focus is likely to shift to building a coalition of allies. 
  • While we don’t think the US will look to join the Trans-Pacific Partnership (TPP), Biden could look to roll back the tariffs that were introduced at the start of Trump’s presidency on solar panel, washing machines as well as steel and aluminium. Vietnam and Malaysia, which are both big producers of these products, would be the biggest beneficiaries if these tariffs were scrapped. He is also likely to take a less adversarial approach to Vietnam, which has seen a surge in exports to the US but is now being threatened by tariffs.
  • That said, a Biden victory would not signal a return to the globalisation of the 1990s and the early 2000s. His election is unlikely to affect the fundamental factors that have caused globalisation in its current form to run its course.
  • Advanced manufacturing techniques, such as 3D printing and the increased use of robots in manufacturing mean that the location of factories no longer hinges on where labour costs are cheapest. This will increase the incentive for companies to locate factories closer to where products are consumed.
  • Other factors will also make it harder for other countries in Emerging Asia to expand their exports. Increased concerns about the environment and the cost of shipping goods across the world will increase the incentive for countries to produce domestically. Any new trade deals (which in any case may struggle to pass through Congress) could also include new provisions on labour standards, which could further nullify the advantage of low labour costs.
  • Supply side disruptions brought about by the pandemic have generally been small in the context of the collapse in global demand and have been resolved more rapidly than many had feared. Nevertheless, the crisis may increase the incentive for countries to reshore some production, especially in sectors such as PPE and pharmaceuticals. These products generally account for a small share of the region’s exports. The exception is Singapore, where exports of pharmaceutical products are equivalent to around 3% of GDP.
  • The upshot is that under a Biden presidency the headwinds facing the region’s poorer countries are likely to continue. Deglobalisation will slow the diffusion of new technologies, production techniques and knowledge. This will make it much harder for poorer Asian economies such as Myanmar, Cambodia and most of South Asia to emulate the previous success of some of the region’s richest economies in leveraging their role in global supply chains to develop globally-competitive manufacturing sectors.

Gareth Leather, Senior Asia Economist, gareth.leather@capitaleconomics.com