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U.S.-Asia Business

2022 US-Asia Economic Roundup: The Shifting Economic Influence of the U.S. and China

December 22, 2022

By Rayliant

Get the latest on global economies and markets: A look at US-Asia tech and supply chains, the rising influence of the yuan, and the 2023 US-Asia economic outlook.

Rayliant Global Advisors is a global investment manager with offices in Los Angeles, London, Hong Kong, Hangzhou and Taipei. With over US$15-billion in assets linked to Rayliant's strategies, its clients include some of the world's largest sovereign wealth funds, pension plans, and other institutional investors. Rayliant's award-winning team is an independent advisor to East West Bank regarding global economies and markets.

When it comes to the US economic relationship with Asia, China remains the proverbial elephant in the room. We were encouraged by a softening discourse between the two countries in late 2022, including during the recent meeting between Presidents Biden and Xi at the G20 in Bali. On the other hand, both superpowers continue vying for economic influence along multiple fronts.

US-China Tech

Perhaps the most visible front is what most news publications have dubbed the US-China “tech war.” Although this term is sensationalist, it is true that the US government has been restricting Chinese apps and hardware from the US market while also restricting chip exports to China. But this US effort will not succeed without international support

Unfortunately for the US, it has struggled to find allies throughout 2022. For example, the Dutch government recently began exporting deep ultraviolet lithography (DUV) chipmaking technology to China; meanwhile, about 20% of Japan's chipmaking machines also go to China. And then there is South Korea, where Samsung has indicated it’s ready to deliver high-quality chips to Baidu. In short, the US has been hard-pressed to find support for its position even among traditional partners in Asia.

Nikkei Asia’s Chief Editor Shigesaburo Okumura recently summed up the US messaging problem during the Trilateral Commission meeting in Tokyo. Shigesaburo-san stated that “many of the participants [are] sick and tired of the decoupling with China imposed by the US under the name of ‘democracy versus autocracy’ dualism. Some of them worried about the arbitrary and unpredictable nature of trade sanctions and their implementation by the US.”

2022 taught the US that if it intends to influence the Chinese tech sector, it may need to adjust its messaging and demonstrate greater sophistication in its understanding of the global tech supply chain. Events in 2023 will reveal whether the US administration has taken these lessons to heart.

Ironically, even some US lawmakers seem to be resisting a dispute with China over big tech, making amendments in early December to a proposed bill restricting use of Chinese chips in US technology. The legislation had garnered significant pushback from American companies worried about the impact rooting out Chinese components in US electronics would have on costs.

Yuan’s Rising Influence

One outcome of 2022’s conflict in Ukraine was the weaponization of the US dollar—including a freeze on Russian FX reserves and a ban on Russia’s use of the SWIFT system—to sanction the nation’s economy. This has accelerated some countries’ movement away from the dollar and into another major currency controlled by a non-US affiliated regime: namely, the Chinese yuan. Of course, using the RMB as a clearing or reserve currency doesn't mean a country agrees with China. It just means a country (1) might not always agree with US sanctions, and (2) might wish to have the autonomy to set its own trade policies.

While the yuan as a global reserve currency may not yet be ready for primetime, we do expect this trend to continue in 2023. For example, Xi Jinping recently traveled to Saudi Arabia to attend the first annual China-Arab Summit, where it was widely reported that China is seeking to trade oil in China’s currency. This meeting could also indicate Saudi Arabia is nearer to joining China, Russia, and India in the BRICS Alliance, and it may accelerate a trend away from the US dollar among BRICS members. This won’t happen overnight, of course. But we may look back at 2022 as the year it began.

US-Asia Supply Chains

Even where China isn’t the main headline in US-Asia relations, it still seems to influence and even dominate the narrative. In May, for example, the US signed the Indo-Pacific Economic Framework (“IPEF”) with Asian partners including Australia, Japan and the Republic of Korea. While this framework is ostensibly designed to strengthen supply chains and lower costs, the policy also reflects an ongoing US effort to support a counterbalance to China within Asia. The IPEF is intended to promote a trading structure that reinforces both America’s economic principles and its economic power. At a minimum, the IPEF revives some of the US-Asia cooperation that expired with former President Trump’s revocation of the Trans-Pacific Partnership in 2017. There is reason to believe the US’s revived engagement with Asia paid dividends in 2022, in part because of China’s own internal actions. President Xi’s persistent “zero-COVID” policy bogged down China’s domestic economy and global supply chains for much of the year, allowing emerging manufacturing nations such as India, Thailand, and Vietnam to fill the gap. Although China’s government began relaxing its zero-COVID policy in the wake of widespread November protests, it may be too little too late: many US manufacturers have already used this difficult year to diversify their supply chains away from China.

That said, China’s role as “the world’s factory” won’t end overnight. Heading into 2023, global investment banks remain bullish regarding companies that have strong connections to Chinese manufacturing. Goldman Sachs promoted Foxconn to “Buy” in December, seeing a potential upside of 90%. And even the major rally in Taiwan’s stock market led by TSMC suggests that the biggest risk factor—fear of the Mainland's invasion of Taiwan—may be less of a drag on China’s domestic economy next year. All this suggests there may be a degree of normalization in the near future.

2023 US-Asia Economic Outlook

As a final bit of context in understanding US-Asia relations going forward, we note that 2022 was an election year for both the US and China. With those elections now in the rearview mirror, we are hopeful Presidents Biden and Xi will find alignment in repairing their flagging economies. To achieve this shared goal, the world will need China’s engineering engine and the US’s scientific engine to be pushing in the same direction. And while there will always be disagreement between the world’s two remaining superpowers, we are encouraged by what we’ve seen at the end of 2022 and expect that this trend will continue into the new year.

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