17 Oct 2016
The 2016 US Presidential Election: Developments and Implications
Developments in economic and trade relations between the United States and China in the wake of the American presidential election are a matter of concern for Hong Kong businessmen. While Democratic candidate Hillary Clinton has been known for her hawkish stance on China issues, Republican contender Donald Trump is even more notorious for proposing to attack the mainland on the economic and trade front. Yet whoever wins the presidency is not expected to have an overly significant impact on Sino-US relations. Regardless of the China-bashing rhetoric in play, once the successful candidate is in office, he or she is likely to become more pragmatic and might not fulfil their election campaign pledges. In addition, the US political system has checks and balances to constrain the president’s ability to adopt radical policies, and the existing strong interdependence between China and the US will remain a key driver of furthering bilateral ties.
China-bashing has for many years been a prominent feature of the American political debate and its intensity usually increases significantly during presidential campaigns. Unfortunately, this has been no different during the current election cycle. China’s relevance as a topic of discussion in American politics is evidenced by the large number of mainland references during the first presidential debate, although there were fewer in the second one. Specifically, Beijing has been blamed by Trump for stealing US jobs, devaluing the renminbi and engaging in state-sponsored espionage through the internet.
Historically, presidential candidates often take a strong position going into an election only to soften their approach once in office. The question this time around is whether or not the successful candidate can afford to make any adjustments to their position once elected. As a matter of fact, US voters appear to be more concerned about a wide range of other matters.
Among the major problems facing the US is the considerable divide between Clinton and Trump supporters, as shown in a recent survey by the Pew Research Center. Trump voters say the top three problems affecting the US are immigration, terrorism and crime, while for Clinton supporters they are the gap between the rich and the poor, relations between racial and ethnic groups, and the state of the environment.
It is also worth noting that 55% of Clinton supporters polled in the Pew Research Center survey consider the Trans-Pacific Partnership (TPP), now waiting for congressional ratification, as a positive development for the US, whereas 58% of Trump voters say the deal would be bad for the country. In addition, the survey found that 59% of Clinton supporters view free-trade agreements (FTAs) favourably, compared with only 26% of Trump supporters.
Clinton’s Election Manifesto on Economy and Trade
Clinton’s economic plan is focused on building an economy that benefits all Americans rather than the wealthiest segment of the population. Among other things, she believes the current system encourages too many corporations to favour short-term profits over long-term investment and is hindered by outdated workplace policies that do not address the needs of American families. Clinton recognises the considerable progress made by the Barack Obama administration in guiding the US economic recovery following the great recession, highlighting in her economic plan that the US economy has added 14 million private-sector jobs over 75 straight months, the longest such streak on record.
Despite these advances, Clinton contends that political gridlock in Washington, in combination with the excessive influence of special interests and the increasingly weaker bonds between corporations and their communities, has left many Americans behind. The US economy has generated far too much inequality and not enough good-paying jobs, while working families lack basic economic security and fairness.
To promote more economic growth, increase wages and foster the creation of better-paying jobs and a fairer economy, Clinton is proposing to (1) break through the Washington gridlock to make the boldest investment in good-paying jobs since World War II; (2) make debt-free college available to all Americans; (3) rewrite the rules to ensure that workers share in the profits they help to create; (4) ensure that those at the top pay their fair share; and (5) put families first by matching US policies to how families live, learn and work in the 21st-century economy.
Regarding international trade, Clinton has vowed to pursue smarter, fairer and tougher trade policies that put US job creation first, and get tough on China and other economies that seek to prosper at the expense of US workers. While Clinton has supported trade liberalisation throughout her many decades in politics, she would ostensibly oppose trade deals like the TPP that do not meet a high bar of creating good-paying jobs and wage increases.
Clinton officially supported the TPP negotiations during her tenure as secretary of state, referring to an eventual agreement as an essential component of President Obama’s pivot to Asia strategy that should benefit US businesses and workers if effectively implemented and enforced. But after taking a hard look at the final text, she concluded that it would not help to raise the wages of working Americans or meet a high bar for creating jobs and advancing national security. Her recent change of heart may be attributable to the realities of election politics along with a genuine belief, shared by a number of US lawmakers, that the final agreement has significant flaws that should be addressed prior to implementation.
Clinton has vowed to oppose any future trade agreements unless they create US jobs, raise wages and improve US national security. She would further renegotiate the North American Free Trade Agreement (NAFTA) and back the efforts of US businesses to expand into new markets to support good-paying jobs and spur economic growth. In that regard, she would support the Export-Import Bank of the United States as well as other policies that foster US exports.
Moreover, Clinton would crack down on China and other economies that fail to comply with trade rules. Among other measures, a Clinton administration would act against countries that dump products on the US market, as China is allegedly doing with steel. She would appoint a new trade prosecutor to keep other countries honest and take on foreign countries that keep their goods artificially cheap by manipulating their currencies. Clinton would also expand the range of available US policy options to include effective new remedies, such as duties and tariffs. Not surprisingly, Clinton opposes China’s ongoing efforts to be recognised as a market economy for the purposes of US antidumping and countervailing duty laws.
While Clinton favours adopting a more effective deterrent against cyber attacks allegedly originating in China, she believes Washington should increase bilateral co-operation with Beijing in areas of common interest, although it would not be surprising if she takes a tougher approach towards Beijing than President Obama. Clinton has suggested that her administration would continue to work with China on a range of international challenges such as climate change and North Korea, while pursuing stronger ties with Japan and South Korea.
In general, the US economic and trade relations with China are unlikely to deteriorate substantially under a Clinton presidency but are also unlikely to improve. Clinton is vowing to crack down on unfair Chinese trade practices and take action against foreign economies, including China, that keep their goods artificially cheap by manipulating their currencies. During her tenure as secretary of state, Clinton was seen by many as a hawkish voice on China affairs, often favouring a more forceful position than President Obama and other administration officials. While she is not expected to shy away from addressing the various irritants that remain in the bilateral relationship, which could potentially cause some tension with Beijing, she is likely to favour a moderate, pragmatic and co-operative approach much in the way Presidents Obama and George W. Bush did during their respective terms in office.
Trump’s Election Manifesto on Economy and Trade
For his part, Trump wants to create a dynamic booming economy that generates 25 million new jobs over the next decade by boosting economic growth to an annual average of 3.5%, with the potential to reach a 4% rate. His economic plan states that increasing growth by 1.5% would result in 18 million jobs in 10 years’ time above the projected current job figures of seven million. Trump also favours the adoption of reform policies with a pro-growth tax plan, a new modern regulatory framework, a trade policy that puts America first, an unleashed American energy plan, and a “penny plan” to reduce non-defence, non-safety net spending by 1% of the previous year’s total each year.
Trump believes his America-first trade policy would be an important driver of US economic growth. The overarching objective of this strategy is to ensure that every US FTA increases GDP growth, reduces the US trade deficit and strengthens the domestic manufacturing base. He warns that there will be no TPP even if the president and Congress pass it in a lame-duck session. Indeed, he has vowed to withdraw the US from that agreement if elected president.
Meanwhile, Trump promised he would appoint the toughest trade negotiators to fight on behalf of US workers. He would direct the secretary of commerce to identify every trade-agreement violation by a foreign country that is harming US workers and direct all appropriate government agencies to all available mechanisms to end these abuses. He would also renegotiate NAFTA in an effort to secure a better deal for American workers and withdraw the US from the agreement if Canada and Mexico refuse to make the necessary modifications.
Regarding China, a Trump administration would designate the mainland as a currency manipulator, noting that any countries that manipulate their currency to take unfair advantage of the US will face higher tariffs and taxes. When he formally announced his presidential candidacy, Trump vowed to bring back US jobs from China, Mexico, Japan and many other places. Additionally, Trump would direct the US trade representative to bring trade cases against China and use every lawful presidential power at his disposal to remedy trade disputes if Beijing does not cease what he alleges as illegal activities. Specifically, Trump has called for a 45% tariff on imports from the mainland.
It is uncertain whether Trump would be as tough on China as he has boasted he would be since he formally announced his presidential candidacy in June 2015, or whether cooler heads would prevail following an eventual victory in November. While China-bashing is popular in presidential campaigns and successful presidential candidates have invariably turned down their rhetoric after they have been sworn into office, Trump is an unconventional candidate less likely to be predictable. What is certain is that any attempts to designate China as a currency manipulator and/or impose punitive tariffs on Beijing would have a significantly negative impact on Sino-US economic and trade relations. The imposition of a punitive tariff on US imports from China would almost certainly elicit a retaliatory response from Beijing and could potentially cause a trade war between the two economic giants, leading to acutely negative consequences for Hong Kong businesses.
Prospects and Implications
It is difficult to predict which candidate will ultimately prevail in the presidential election. While most opinion polls show Clinton has a small lead over Trump, there is always the possibility of what is commonly known in American politics as the October surprise, i.e., when some action or event takes place in the month before the election that throws the whole process into a new direction and produces a different outcome than had been predicted. Nothing should be taken for granted in the current US election. As the unexpected outcome of Britain’s Brexit vote shows, anything is possible.
By and large, Clinton is perceived by the business community as having a more balanced and modest approach to international trade than Trump. She has indicated that the US is in need of more jobs and such jobs are related to expanding markets for US-made goods, which in turn requires US involvement in trade issues. Trump, on the other hand, has taken a different stance on trade – in particular, a different approach than the Republican Party. Historically, the Republican Party has supported trade, while the Democratic Party has opposed it in order to secure the labour union vote. But a different paradigm has emerged in this election cycle and it is not completely clear what Trump might do on trade issues.
If he ultimately wins the election, there is speculation that Trump could enter the presidency with the view that he has to fulfil some of his campaign promises, such as raising import tariffs on Chinese products and withdrawing from agreements such as NAFTA. US law would in fact allow him to take action. Under the NAFTA Implementation Act of 1993, for example, most-favoured-nation tariffs could be re-imposed on imports from Canada and/or Mexico unilaterally and after consultation with Congress.
Furthermore, under the Trade Expansion Act of 1962, if the president finds that there is an adverse impact on national security from imports, he or she can impose tariffs or quotas as needed to offset the adverse impact. Under the Trade Act of 1974, if there is a large and serious US balance of payments (BOP) deficit, the president can impose tariffs of up to 15%, quantitative restrictions or both for up to 150 days against one or more countries with large BOP surpluses. If foreign countries deny the US its FTA rights or carry out practices that are unjustifiable, unreasonable or discriminatory, the US can also take retaliatory actions at the discretion of the president that include increasing tariffs or imposing quotas.
Both the courts and Congress may have difficulty in preventing any action by the president if he or she enacts relevant provisions under the existing laws. In raising import tariffs, for instance, any efforts to block the president would have to be undertaken in congressional or court challenges, both of which would take significant time and involve a lengthy legal battle that would do little to resolve the issue in the short term, with the challenged tariffs remaining in place. The commercial and consumer impact may be the only effective counteracting force, considering that the brunt of the impact of increased tariffs is likely to be borne by US consumers.
If recent experience is any guide, whoever wins the US presidency may not make any unduly significant impact on US trade policies and Sino-American economic and trade relations. China-bashing has largely been a tactic used in past election campaigns. Once the successful candidate is in office, he or she would become more pragmatic and might not implement the promises and declarations made during their campaign. Given that the US and China are each other’s largest trading partners, the existing strong interdependence between the two countries will be a major force in limiting the president’s ability to adopt outrageous policies and a main engine for fortifying bilateral relations.
Lastly but arguably of equal importance, the cabinet members to be selected by the new president may be just as influential as the new occupant of the Oval Office. Pundits have had trouble guessing who might serve in a Trump cabinet, describing the potential roster of candidates as a mystery. Others have divined a little more on an eventual Clinton presidency given her long history of service and the people with whom she has worked and collaborated to date. While it is crucial to watch the presidential candidates to keep abreast of their positions on China and global economic and trade affairs in general, it is equally important to keep an eye on the officials who will be put in office to run Washington’s bilateral relationship with Beijing on a day-to-day basis.