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Trump's China-bashing threatens all Asian economies

Imposing tariffs and devaluing dollar are tempting for embattled president

| China

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."

Desperate to win reelection and avoid blame for the U.S.'s COVID-19 disaster, President Donald Trump is going all-in on China-bashing.

Attacking the world's most populous nation made for good sport for his fans in 2016, when the reality television star upset Hillary Clinton to win the presidency. China was among Trump's favorite scapegoats for why America had lost its competitiveness.

But in 2020, China is his only strategy. With U.S. deaths approaching the 50,000 mark, Trump cannot run on a successful battle against coronavirus. The buoyant economy he thought was a winning ticket is in tatters as the coronavirus savages growth, incomes and investor confidence.

Attacking Beijing could distract from both problems, but this will not just hit China. It will put all of Asia's economies in harm's way. With Trump's full array of punitive measures to hand, Asia is going to be on edge well into the future.

The U.S.'s economy, Trump argues, is paying the price for China's lies about events in Wuhan, with connivance by the World Health Organization. And, oh yes, by Joe Biden, Trump's 2020 opponent. Trump calls Biden weak on China and suggests his son Hunter was involved in shady dealings with Beijing.

But former Vice President Biden will not be outdone, as a recent campaign ad shows, when it comes to getting tough on Beijing. The ad accuses the president of naivete in believing Chinese counterpart Xi Jinping's claims to be on top of the COVID-19 outbreak and paints a hostile picture of China overall.

Americans might be fine with this tit for tat. A Pew Research poll found that two-thirds of U.S. voters had an unfavorable view of China compared to 47% two years ago. Expect a 2020 election with bipartisan attacks on Xi's government.

The effects of attacks on China are broad. More China criticism could increase volatility in bond, stock and currency markets across Asia. Asian governments' and businesses' biggest fear is Trump doubling down on import taxes just when China is growing the slowest in 30 years. Following the coronavirus-driven 6.8% contraction in China's gross domestic product in the first quarter, these would hardly be welcome.

More tariffs on China could further reduce demand and outward investment from Asia's main growth engine. It does not take much to imagine deeper hits to gross domestic product in Japan, South Korea and Singapore and down through the economic food chain to Indonesia, Vietnam and Myanmar. If Trump made good on threats of 25% penalties on imports of cars and auto parts, it would badly affect Thailand. The fallout for supply chains would hit growth from the Philippines to India.

A sudden shift in dollar policy is a bigger threat in 2020 than in 2017 when Trump entered the Oval Office. Back then, growth was steady and unemployment was edging lower. Now the talk is of a deep recession, or worse. Trump has long railed against exchange rates he claims are "killing us." The risk of him directing the Department of the Treasury and the Federal Reserve to manipulate the dollar has never been higher.

Trump could expand his entity list of banned mainland Chinese companies. Team Trump has long hinted that blacklisting telecoms giant Huawei Technologies was just the start of damage it could do to Xi's Made in China 2025 domestic manufacturing project. Any fresh assault on the artificial intelligence, energy, microprocessing, robotics and self-driving vehicle spaces would have ripple effects if China then sourced fewer materials and commodities from its Asian neighbors and if, more broadly, its economy were less vibrant in the years ahead.

Count the ways, too, that Xi's China could retaliate. It could devalue its currency before Trump. Xi could disavow the phase one trade deal which guaranteed billions in purchases from farmers in states Trump must win come November.

Xi's China could retaliate.    © Reuters

Beijing could threaten to dump its $1.1 trillion of U.S. government bonds, greatly increasing Washington's debt-servicing costs. It could ban sales of U.S. cars and trucks. It could impose an Airbus-only policy in Asia's biggest economy, banning the U.S.'s Boeing from its aerospace market. It could halt exports of the rare-earth materials Silicon Valley needs to make batteries, memory chips and smartphones.

All too many of the medicines and supplies needed to treat COVID-19 are produced in China. And what is to stop Xi from telling Apple, CNN, Goldman Sachs, Nike, Starbucks, Tesla and others they have 10 days to leave China? Beijing could halt production of Trump family merchandise. It could withdraw all those Chinese patents Trump's daughter Ivanka has mysteriously been awarded these last few years.

This year's election will put Asia in the crosshairs. In the months ahead, markets might be nostalgic for the days when Trump's America and Xi's China were merely brawling. The messy divorce between the world's two largest economies unfolding during a pandemic would be almost too great to calculate.

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