Biden’s Policies May Impact Asian Credit Conditions: Moody’s

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The policies of US President-elect Joe Biden’s administration may have a marginal impact on the credit conditions in Asia and is less likely to deepen trade linkages between the US and Asia, said a report by Moody’s Investors Service.

The report also said that the US policy towards China is unlikely to change dramatically in the early stages of the Biden administration.

In addition, a renewed emphasis on improving relations with traditional allies in Asia is likely to confront the longer-term shifts in the economic and geopolitical balance that are increasing China’s centrality to the region.

“In consequence, we expect the Biden administration’s policies to have at the most a marginal impact on credit conditions in Asia,” it said.

It noted that outside China, Biden’s policy may attempt to revive the “pivot to Asia” adopted by former President Barack Obama.

This policy aimed to increase diplomatic and investment ties with the region while retaining the strategic imperatives of closer security relations with Australia, India, Japan and some Association of Southeast Asian Nations (ASEAN) countries.

However, the Biden administration is more likely to focus on boosting security alliances, with less emphasis on enhanced trade linkages.

“With Japan and Korea, we expect Biden to restore traditional relations under long-standing alliances, making them less transactional. As such, issues related to cost-sharing for military spending are not likely to be intertwined with trade issues, with the resulting investment certainty supporting the automotive and semiconductor sectors.”

The US acting to moderate tensions between Japan and Korea should also help improve reciprocal trade for both countries. For Korea, however, geopolitical risk will remain elevated, with Biden likely to maintain a strategy of maximum pressure on North Korea.

The Biden administration is less likely to deepen trade linkages between the US and Asia, as per the report.

The US remains unlikely to join multilateral trade agreements such as Comprehensive and Progressive Agreement for Trans-Pacific Partnership in the near term.

This abstention, coupled with Asia-Pacific countries’ recent completion of the Regional Comprehensive Economic Partnership trade agreement, will accelerate intra-Asia trade flows and China’s rising influence, with a positive credit impact for the most export-oriented sovereigns in Asia, it added.

The Moody’s Investors Service report also said: “With the passage of major legislation, including Biden’s proposed fiscal stimulus incorporating green infrastructure, remaining difficult irrespective of the outcome of the January 5 runoff elections in Georgia, we expect the US Federal Reserve will maintain a loose monetary policy to support economic recovery.”

The Fed policy will support capital flows to some Asian emerging markets, which could in turn present policy challenges, including on exchange rate management, for those with large external imbalances.

Even under a Biden administration, the US will maintain scrutiny of the currency policies of Asian countries with large trade surpluses with the US, it said.

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