This article first appeared in Forum, The Edge Malaysia Weekly, on April 4 - April 10, 2016.
THE American elections are followed closely by Asians who know that what happens in the US can have major consequences for their financial markets and economies as well as regional stability. Interest is particularly high in this election, for several reasons.
One is that there is a real chance of a dramatic change in American relations with Asia if a candidate such as Donald Trump wins. Another reason is that the campaign so far reveals American voters to be in an angry mood, which could complicate the country’s political, trade and investment engagement with Asia. Finally, there is added interest because we could well see the US’ first woman president, Hillary Clinton.
It is still some time before the party conventions formally anoint the Republican and Democratic presidential candidates for the election on Nov 8. However, we have enough information on how the race is shaping up to start thinking through the possible implications for the region — the likely nominees and their foreign policy biases are becoming clearer. From this, it is apparent that a couple of things could go wrong for Asia: more trade protectionism and uncertainty over the US’ commitment to remain a strategic force in Asia. Both issues could have tremendous effects on the region and are worth assessing even at this early stage.
What is the state of the race?
Some things are clear about the campaign: Clinton leads the Democrat side while Trump is the Republican frontrunner. Both are edging closer to victory, but neither have the nomination sewn up.
In the Democrat race, Clinton has endured a number of setbacks but still commands such a large lead in the delegate count that her rival, the left-inclined Bernie Sanders, will have to win huge victories in the remaining primaries to overtake her. In the Republican contest, Trump is building up an overwhelming lead over his competitors, Ted Cruz and John Kasich. He is not quite there yet, but the polls for the coming primaries suggest that the others will not be able to catch up. However, things are somewhat murkier than in the Democrat case.
A large part of the Republican-party establishment and its business funders are appalled by Trump’s controversial comments on Muslims, women and foreign countries: They believe a Trump candidacy would end in an ignominious defeat in November and are trying to find ways to stop him. However, these efforts appear to be fragmented and have been ineffective so far. Given this and Trump’s continued popularity with the Republican base, it is difficult to see how he could be denied the Republican nomination.
So, it will almost certainly be a Clinton versus Trump fight in November.
What is the mood of the American voter and how will it affect Asia?
The other dimension of the campaign so far is what it tells us about the mood of the voters — and the implications this has for American policy in Asia. Much has been made about the “anger” felt by a large proportion of the electorate, an anger evident in both the Republican and Democrat races. While analysts point to the stagnation of median household incomes and rising inequality as reasons for this anger, the main reason seems to be a sense that the system is loaded against the common man and in favour of a rapacious elite that gets away unpunished with its sins. One issue that has struck a chord with voters is that the elites pushed for free-trade policies which benefited them and exporting nations, such as those in Asia, but hurt ordinary Americans.
On the right, roughly one-third of Republican voters support Trump, untroubled by his outrageous utterances — apparently because he is seen as an outsider and someone who would stick it to the ruling elite with relish. On the left, Sanders’ anti-establishment, anti-free trade crusade appears to be garnering roughly 35% to 40% of Democrat votes. This has forced Clinton to shift leftward, denouncing, for example, the Trans-Pacific Partnership Agreement (TPPA) she once hailed as the gold standard among trade agreements. Sanders may not win the Democratic nomination, but he will win enough to influence the party’s platform for the presidential election, which is bound to have a protectionist slant.
Trump has outlined more of his foreign-policy thinking in recent speeches and interviews. It is clear that if he wins the presidency, he will make a fundamental change to the US’ role in the world — and Asia could well be a big loser. A number of themes runs through his thinking. One is the “America First” notion that the country should be less engaged with global security alliances, reflecting a distrust of key allies and a belief that the US could go it alone. He has constantly questioned the US’ commitment to NATO and asked why it should be helping allies such as Japan and South Korea, which he insists should be made to pay for the upkeep of American marines based there.
Trump has also lashed out at traditional US allies in the Middle East, such as Saudi Arabia and the United Arab Emirates. In addition, he has suggested that he would deal with China’s assertiveness in the South China Sea by using trade deals to change its behaviour, something which has left seasoned diplomats bemused. His threat to impose 45% tariffs on China “if they don’t behave” seems to be going down well with the electorate and even some business leaders.
So, should we fear protectionism and an America disengaging from the world?
There are good reasons Asia could emerge as a loser from the elections: The TPPA is at risk; there could be more trade disputes with the US; and there would be uncertainty over the American commitment to an active strategic role in the region.
Nevertheless, we believe our concerns will be allayed, for a few reasons. First, our base-case scenario is for Clinton to win the election and then revert to her original, moderate positions on issues affecting Asia. Second, if Trump wins, things could be bad for a while, but ultimately, Asia policy will be run rationally and not be damaging.
Why are we confident about a Clinton victory? Mainly because we see her mobilising the same groups that twice propelled Obama to the White House — young voters, women, Hispanics and African-Americans. In addition, Obama’s improving approval ratings, reflecting the better state of the economy, also point to a Clinton victory. Past voting trends show that a growing economy and the incumbent president’s popularity are important advantages for a candidate from his party.
Once Clinton is inaugurated and has to formulate policies, her past record indicates that she will maintain the US’ generally pro-trade stance and its deep geo-political engagement with Asia. She is a known quantity on Asia as her preferred policy preferences are known from her time as a highly engaged First Lady during Bill Clinton’s presidency and, later, as a successful Secretary of State. Asians will remember her commitment to strong ties with the region: Remember that the so-called American pivot to Asia happened during her watch. As a good politician, she will find ways to placate dissatisfied voters through higher subsidies and welfare payments so as to make free trade palatable to voters.
In this scenario, the TPPA will win Congressional approval during the lame-duck session of Congress, just after the elections and before the new president is inaugurated. Beyond that, the American pivot to Asia will remain and perhaps even be strengthened during a Clinton presidency.
In the less likely scenario of a Trump win, the implications for Asia would be more negative initially. A President Trump’s Asia policy is difficult to foresee. The five foreign policy advisers he has revealed do not include Asia specialists. But, given his instincts, it will be surprising if the US were to continue actively pivoting to Asia. The vacuum thus created will make for a less stable Asia-Pacific, one in which rising powers such as China might be able to assert their influence more vigorously.
While Trump will probably adopt a pragmatic stand on many domestic issues such as the budget, healthcare and social security, he will also certainly feel vindicated in pushing his isolationist and protectionist views. There is unlikely to be huge or effective opposition to his policies, at least initially. After all, the political class as a whole will draw the conclusion from his victory that angry voters have to be appeased. The TPPA might be stalled in Congress and trade policies turn increasingly inward, with the US Commerce Department likely to be more aggressive in hitting major exporting nations with anti-dumping penalties while other non-tariff barriers will grow. Asian exporting nations will suffer disproportionately from this.
Ultimately, however, it is the hard calculation of a country’s interests that will prevail over the idiosyncrasies of a particular individual leader. Asia-Pacific remains a core interest of the US, and the same applies to ensuring that the US remains a dominant power. With time, as the potential damage from a less engaged foreign policy becomes obvious, isolationist policies will be toned down and a greater effort made to embrace Asia.
In short, Asians need to watch the American elections carefully, but should not be unduly concerned.
Manu Bhaskaran is a partner and head of economic research at Centennial Group Inc, an economics consultancy
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