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Why the US election matters to Singapore
WHETHER Americans vote red or blue by November 3, to many observers at least one thing is clear: the end of the US-China trade war is nowhere in sight.
DBS chief economist Taimur Baig said: "Once tariffs go up, it is very difficult to bring them down (because the US) will be accused of being soft on China".
This is the case even in the scenario that Democratic nominee Joe Biden defeats Republican incumbent Donald Trump, an outcome tipped to be favourable for Asia as it would herald a return to a rules-based approach to trade and multilateralism, Mr Baig said in an interview with The Business Times.
"If the US economy is doing poorly and if the view is that the only way exports can be supported is through lowering tariffs, then China would also ease market access and some tariffs will have to come down. But those will be part of negotiations. It won't be an executive order early in Biden's presidency," Dr Baig added.
OCBC chief economist Selena Ling said it is possible that the US and China may move from a Phase One trade deal, signed in January this year after two years of tensions, to a Phase Two agreement after the election.
This means they may move away from further escalation, with Mr Biden possibly more amenable to negotiations, but a reset to zero is unlikely, she said.
"There has been a swing in the pendulum in Washington to be tougher on the China side of the policy, and that's probably not going to change, even if the president changes," she added.
According to Alex Capri, a visiting senior fellow at the National University of Singapore Business School, what underpins the clash between the world's two largest economies is not just a trade war, but a geopolitical rivalry that is also systemic, since both have very different economic and political models.
While the tone under Mr Biden will be very different from Mr Trump's as it will be more respectful and diplomatic, Mr Biden's administration could "continue or even accelerate" some of the measures rolled out by the Trump administration, in terms of developing homegrown technology and moving supply chains back to the US.
Even so, a first scenario of a "blue wave", in which the Democrats also capture the majority in both chambers of the US Congress, could signal other positive developments, observers said.
"It's possible that the US could rejoin the Trans-Pacific Partnership (TPP), and that would be beneficial to Singapore and other members of the trade pact, because the US market represents 60 per cent of the TPP's gross domestic product," Mr Capri said.
The US could become a big mover when it comes to implementing rule frameworks, including those that Singapore has been actively trying to craft with other partners in the areas of digital trade, supply chain, trade tech supply chain, transparency and resiliency, he said.
This means a Biden administration would be a positive thing for Singapore, given the Republic's role as an entrepot and a capacity builder in areas such as trade tech, he said.
Dr Baig said Singapore's businesses and markets would also be cheered by a resumption towards a rules-based trading order with less uncertainty.
Meanwhile, Mr Biden would also "restore" the US State Department, Mr Capri said, noting that there are still a number of diplomatic positions in Asia, including Singapore where there is no US ambassador, that remain unfilled by the Trump administration.
On the other hand, Mr Biden's plans to increase corporate income tax would be bad news for businesses, Ms Ling pointed out, adding that his election promise of higher fiscal stimulus would also mean the need for bigger financing, from the US Treasury's point of view.
At the same time, Mr Biden may come down harder on things like human rights violations and environmental protection, which would be a "net negative for China", she said.
Concurring, Dr Baig said this also means the Biden administration may not be any more accommodating than the Trump administration on issues related to Hong Kong, Taiwan, internal security or the South China Sea.
In a second scenario where Mr Biden enters the White House with the Republicans maintaining control of the Senate, the US Congress could again end up in a political gridlock.
"So no major stimulus measures, no major resumption of climate change-supporting multilateral initiatives, and no major legislative tailwind coming from the US," Dr Baig said.
But this scenario will still benefit China, as the trade war would ease to some extent, he said.
"We would expect the electronics supply chain, which has been under strain under the trade war to function better and the electronics exporters of Asia, the usual candidates from Singapore to Thailand, Malaysia, South Korea, Taiwan - they will all perform even in that scenario," he added.
The third scenario would see Mr Trump returning for a second term, an outcome that observers said would see a continuation of his policies from the last four years.
OCBC's Ms Ling has a grimmer view, believing that the Covid-19 crisis in the US could worsen, given that Mr Trump does not appear to have considered the need for mass testing or greater funding for local hospitals, despite being infected with the coronavirus earlier this month.
In addition, Mr Trump has moved away from using tariffs to imposing economic sanctions and targeting specific companies in specific industries. This sets a "worrying precedent" on how people tackle financial issues without adhering to a multilateral rules-based trading system, she said.
For Singapore, this scenario may also cause complications and uncertainty.
For example, the Trump administration's crackdown on Chinese video app TikTok could indirectly implicate Singapore since some of its data servers reside in Singapore, further raising the question of what happens if more countries impose data localisation, observers said.
Dr Baig said: "Any scenario under which the US joins a club of like-minded nations, Singapore would benefit. Any scenario under which the US becomes more inward-looking, it is negative for Asia in general and Singapore in particular."
The fourth possible outcome - also widely regarded as the "worst case scenario" - involves a contested result, one that could take a long time to resolve and lead to protracted uncertainty that could impact the rest of the world.
"This is where state legislative bodies and state courts will get involved. There could be civil unrest and there could also be intervention from the US Supreme Court, which itself could be politicised, and as a result, not necessarily lead to an amicable conclusion," Dr Baig said.
The uncertainty would also take a toll on market sentiment, and in turn affect business and consumer confidence, Ms Ling said.
But despite the deep political polarisation, Mr Capri said he remains optimistic, given how sound and resilient the US institutions have been over the last four years despite coming under stress and strain.
"Even if it did end up in a Supreme Court decision, I think the Supreme Court would definitely put the integrity of the institutions and the Constitution ahead of any partisan politics," he said.
Singapore, which has good relations with both the US and China, is no stranger to the delicate art of balancing between the East and the West.
Whichever outcome happens, observers say Singapore has to continue doing what it has been doing - to facilitate the creation of rules-based frameworks that promote transparency, and stay open to trade, investments and talent.