by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
THERE’S A LONG LAUNDRY LIST of objectives, many focused on trade. Biden is expected to formally launch the Indo-Pacific Economic Framework, his signature regional trade initiative, while in Tokyo. Japan, South Korea, Australia and New Zealand are expected to be part of the initial launch.
THERE WILL BE MEETINGS OF THE SO-CALLED “QUAD,” an informal geopolitical grouping that includes the U.S., India, Australia and Japan, designed to counter China’s rising economic, diplomatic and military power in the region.
A MAJOR GOAL OF THE TRIP is to improve U.S. relations with India, which has disappointed Washington with its refusal to condemn Russia’s invasion of Ukraine. Another goal is to improve ties between Japan and the new conservative government in South Korea.
THE BIGGEST GOAL, OF COURSE, is to send a message to China, which is showing more overt support for North Korea. The U.S. will signal that security alliances with allies in the region are rock-solid; last month, North Korean leader Kim Jong Un and his powerful sister, Kim Yo Jong, announced an aggressive military buildup, focusing on nuclear missile tests. Many experts fear the Kims may test a weapon during Biden’s visit.
THE WAR OF WORDS BETWEEN CHINA AND THE U.S. comes as antipathy toward Beijing persists in Washington. There’s a bipartisan consensus in this city that China should be shunned because of its treatment of dissidents, its refusal to show transparency on how the Covid virus developed, its spying on U.S. firms and its continued threats against Taiwan.
BIDEN HAS HINTED THAT TRUMP-ERA SANCTIONS against China could be eased as part of a larger deal, but our sources say Biden is reluctant to play that card because of the inevitable political downsides in the U.S. An easing of sanctions would expose the president to charges that he’s “soft on China.”
IN LIGHT OF THE ENORMOUS SANCTIONS and military pushback against Russia, it’s unlikely that Chinese President Xi will seek a Taiwan takeover anytime soon. But the China-Russia-North Korea alliance is a source of major concern in Washington, especially as the threat from Pyomjong grows.
THE INVESTMENT PLAY IN THIS COMPLICATED NARRATIVE is a continued ramp-up of defense spending by the U.S. Biden’s initial call for about $813 billion in total Pentagon outlays in the next fiscal year almost certainly will be increased by Congress, with an emphasis on ship-building and replenishing U.S. fighter jets.
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This post was first published at the AGF Perspectives Blog.
