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Biden administration and what it means for China and rest of the Asia-Pacific
How might Joe Biden’s administration impact trade, climate change goals and the energy sector in China and the wider Asia-Pacific region?
Yanting Zhou, Senior Economist, Wood Mackenzie suggests that while the potential for further economic decoupling between China and the US still exists under a Biden administration, ‘a less confrontational President may reduce this risk’. Trade is expected to remain the number one policy focus for US-China relationships and Wood Mackenzie’s assumption is that the January 2020 Phase 1 trade deal will ‘broadly remain in place, despite the agreement looking difficult to achieve’.
Zhou notes: ‘Amendments and subsequent agreements are likely, though none will be easy to conclude. Throughout the election campaign, Biden maintained that the US lost more than it gained in the US-China trade war as higher tariffs have raised the cost of goods for US households. Efforts to shorten supply chains will continue, as will China’s effort to strengthen its ties with Asia and Europe. Therefore, we believe that the trade relationship will remain fractious and volumes between the two countries are likely to fall gradually.’
Meanwhile, Sushant Gupta, Wood Mackenzie’s Research Director, says: ‘China’s Phase 1 trade deal commitment to purchase an additional $52.4bn of energy from the US by end-2021 looks very challenging. Lower oil prices, reduced US crude production and limited recovery in crude processing in China are all factors. Crude imports from the US ramped up in 2020 to about 350,000 b/d on average, but still way below the required amount of more than 1.5mn b/d to meet the deal. China’s temporary lifting of the LNG import tariff has helped increase volumes, but by nowhere near enough to fill the gap left by reduced crude imports.’
Gavin Thompson, Vice Chairman, adds: ‘We can expect both collaboration and competition on tackling climate change. Biden is expected to announce that the US will re-join the Paris Agreement on Day 1 of this presidency, along with ambitious plans to deliver a pathway to net zero emission by 2050. However, the latter will require collaboration with China, particularly to bring others onboard. But at the same time, China and the US will increasingly compete to be the global leader in tackling climate change, with both seeking to expand control over low/zero carbon technology.’
Bringing the US back in to the Paris Agreement ‘will take care of a lingering uncertainty in energy markets, enabling energy companies and investors in Asia to breathe a sigh of relief and plan strategies accordingly’, says Prakash Sharma, Research Director. ‘With the US back in the Agreement, we can expect a surge in net zero 2050 policy announcements. If US majors such as ExxonMobil and Chevron also raise their climate ambitions in response, then Asian NOCs like CNOOC, PTT, ONGC etc will come under pressure to do more. This could lead to a race in securing resources for the clean energy sector including semi-conductors, battery metals, and renewables supply chains. In the short-term, however, commodity prices could become more volatile as economies return to growth and energy demand recovers. Impact from inflation and foreign exchange is possible depending on how Biden funds his proposed $1.9tn stimulus. If it comes from drawing down past inflows to Asia, price volatility could increase.’