Asia House Advisory takes a look at the key things to watch across trade, tech and policy in 2021.
With COVID-19 sweeping the globe and forcing governments to take extraordinary measures to stop the spread of the virus, 2020 has been a calamitous year for trade. Unprecedented public health measures effectively outlawed many forms of economic activity, resulting in the worst global recession since the 1930s. IMF and WTO projections put global growth at -4.4 per cent and show a 9.2 per cent decline in the volume of world merchandise trade.
But there is light at the end of the tunnel. The rapid development and progress of a number of vaccines could pave the way back to some form of normality. Global growth for the next year is projected at 5.2 per cent, and the IMF has projected that global GDP at the end of 2021 will be 0.6 per cent above 2019 figures. Mid-year surges in economic activity suggest that economies can bounce back quickly – but success has been uneven across geographies and sectors, and will continue to be so. 2020 forecasts are less grim than expected, but the IMF projects “a long ascent back to pre-pandemic levels of activity [that] remain prone to setbacks.”
Against this context, the policy outlook sees a much bigger role for the state in the economy moving forward. The pandemic has shown the need for additional capacity in public health systems, for an active and flexible social safety net, and for adequate crisis preparedness, including stockpiles of key medical supplies. Government logistical capabilities will continue to be tested in the coming year as vaccines are rolled out. Looking ahead, governments worldwide are likely to increase spending in key areas such as infrastructure to coax growth out of timid economies.
At the international level, cooperation will be crucial to ensuring global recovery in 2021. Continued coordination on global public health to manage the pandemic and distribute vaccines worldwide must not be hindered by political rivalry. Low interest rates and public support for borrowing and spending also provide an opportunity to invest in large projects that will deliver growth in a more sustainable way as economies inspire each other to meet their climate change commitments.
The following is a selection of global policy areas that Asia House will be watching in 2021.
1. Technology – a reliable economic driver and continuing source of friction
While oil prices have fallen through the floor, and retail stores, hospitality, and travel and tourism business has dried up, the digital economy bucked the trend in 2020.
Technology has provided a lifeline for many consumer-facing businesses, while also providing the means for office-based work to continue remotely. It is likely that changes in consumer habits will be permanent, to some extent, in many sectors.
The markets have responded accordingly. The top five US Big Tech companies (Apple, Microsoft, Amazon, Alphabet and Facebook) have added US$12.4tn to their combined market cap in 2020, further buoyed by the results of the US election. The five are responsible for any gains the S&P500 has made this year, with many other sectors verging on collapse, resulting in concerns of a ‘top heavy’ market. Meanwhile, the big tech players in China – including Alibaba and Tencent – continue to push the boundaries in AI, fintech, and consumer-facing tech. Expect to see 2020’s tech in China appear in markets in ASEAN and elsewhere in 2021 as Chinese firms continue to expand globally.
The growing importance of the digital economy further raises the stakes for leadership and dominance in technology and data, which has been a key component of strategic rivalry between the US and China. The US has continued to come down hard on Chinese tech companies and R&D partnerships in 2020, and has constrained the supply of key microchip technology. This has only driven China to work towards gaining independence in the sector.
Increased scrutiny of Chinese tech and investments has been carried out elsewhere, with the UK and EU blocking the participation of Huawei in 5G networks and developing policies aimed at filtering Chinese investments and acquisitions.
It is unlikely that the situation will change much in 2021. China doubled down on the strategic independence of its economy in its latest five-year plan. Part of the EU’s ‘reset’ of relations with the US is the creation of a ‘transatlantic technology space’. Competition will continue to heat up in areas such as microchips and artificial intelligence, and new fronts may open in areas including the next wave of green technologies such hydrogen fuel. The battlegrounds for the strategic rivalry will continue to be third countries – developing countries in Africa, Latin America, and ASEAN – which will continue to face choices in their relationships and in whose technology spheres they wish to orbit.
2. Recovery provides opportunity for the transition to a low-carbon economy
There is a silver lining to 2020’s economic woes, reduced output and travel restrictions. In the first six months of this year, 8.8 per cent less carbon dioxide was emitted than in the same period in 2019.
The economic crisis has spurred greater government spending at the same time as pressure for global climate change commitment grows. This is manifesting in various ways – ‘build back better’ in the US, a green deal in the EU, and commitments to transitioning to a net zero carbon economy. China has committed to net zero by 2060, and Japan and South Korea have committed to net zero by 2050.
We can expect momentum to increase in 2021 on sustainable infrastructure and technologies such as hydrogen, carbon capture and storage, and the next generation of renewables such as floating offshore wind. Momentum is also building in the financial sector as pressure from investors and consumers mounts on companies to increase transparency and reduce their environmental impact.
While this bodes well for many sectors, it is perhaps the beginning of the end for some sectors, such as oil and gas. The transition away from fossil fuels will have a significant impact on a number of economies – in particular those in the Gulf which have already been hit hard by low oil prices. 2021 will be a year of reinvention for the energy sector and the Gulf.
3. A reset for geopolitics, though the tune remains the same
The economic catastrophe of 2020 built on an already slowing global economy and weak trade outlook. The immediate cause of this was three years of increasing tensions and a tariff war between China and the US, driven by the isolationist administration of President Donald Trump.
The election of Joe Biden changes the context for geopolitics and global trade. Biden is a strong multilateralist and has committed to re-joining the WHO and rebuilding the WTO. However, the Biden administration cannot turn back time. The damage done by the abrasive approach of the Trump administration will make it difficult for the US to reinsert, or reassert itself, especially in Asia Pacific and the Middle East.
The mood on China in the US is bipartisan. In 2021, US-China relations will continue to dominate geopolitics. Although the temperature is likely to be lower than the past four years, the key issues will not go away. The battleground will shift from tariffs and Twitter spats to multilateral institutions and old alliances.
Other fronts for China’s strategic assertions will also open up, cementing alliances between western liberal democracies. Increasing tensions between China and Australia are evidence of the complex approach required by western democracies to maintain strong economic ties with China. There are likely to be similar issues between China and the UK, and China and the EU as both remove Chinese technology from key infrastructure and increase scrutiny on Chinese investments.
4. Opportunities for increased innovation in global trade policy
China’s immediate neighbours Japan and Korea, and smaller countries such as those in ASEAN, will need to take a more practical approach. The recent signing of the Regional Comprehensive Economic Partnership (RCEP) in November, of which China, Japan, Korea and ASEAN countries are members, and the CPTPP in 2018, which China has recently showed interest in joining, point towards a new, Asia-centric model for trade and international relations. RCEP in particular benefits trade between China, Japan and Korea, all of whom have had trade spats in the past few years. Notably the US is not a member of either agreement, having pulled out of discussions on what was then the TPP in 2017.
RCEP and the CPTPP also indicate a new innovative approach to trade policy which has grown out of a decade of stagnant progress at the WTO level. The past several years have seen an increase in bilateral agreements and plurilateral agreements of various forms. The sector-focused Digital Economic Partnership Agreement between Singapore, New Zealand and Chile is perhaps a blueprint for a new wave of progressive agreements on the digital economy.
2020 has been a year in which everything changed. Some of this has been an acceleration of developing trends – the digitisation of the economy, a more multipolar world, the recalibration of trade around a regional model – but other less precedented changes have been driven by necessity. With any luck, 2021 will be a year of revival, with the opportunity for a recovery that produces a more dynamic, more open, and less carbon-intensive global economy.
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