No US-China reset on the cards. Is the ASX screwed?

The Biden Administration has signalled that there will be no major changes to its attitude towards China. What does that mean for the ASX?

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One of the most dominant themes running through the ASX last year was Australia's deteriorating relationship with China. The issues started as a diplomatic spat between the Australian government and the Communist Party of China (CCP) regarding the origins of the coronavirus pandemic.  Tensions have since spilled over into the share market in a dramatic fashion.

Just ask shareholders of Treasury Wine Estates Ltd (ASX: TWE). Treasury shares had one of their worst years ever last year, as the CCP imposed import restrictions on Australian wine entering China. Treasury shares were at $17.70 in January last year. They closed the year at $9.40.

Australia's "China problem"

Part of the problem is that China views Australia as a lockstep ally of the United States. The United States certainly did not pursue an amicable trade relationship with China under the recently departed Trump Administration. The relationship between these two countries over the past 4 years has been defined by tariffs and trade wars.

The Trump Administration is now history. Many ASX investors might be hoping for a relationship reset between the world's 2 largest economies. In turn, restoring our own fractured relations. Unfortunately for those investors, this doesn't look likely.

Biden Administration signals no major change to Sino-US relations

According to reporting in the Australian Financial Review (AFR) today, the Sino-US relationship doesn't look set for a significant thaw anytime soon.

According to the report, the recently confirmed US Secretary of State, Anthony Blinken told his confirmation hearing that the Trump administration "was right in taking a tougher approach to China". Blinken is the equivalent to our Foreign Minister. He then "judged" the CCP as "engaging in genocide against Xinjiang's Uighur population, trampling democracy in Hong Kong, and threatening Taiwan".

Not exactly the best way to go about a 'reset'.

Blinken has also apparently described strategic competition with China as "a defining feature of the 21st century". He reportedly added that "Chinese conduct hurts American workers, blunts the country's technological edge, and threatens US alliances".

The report notes that these attitudes break the Biden administration away from the 'consensus' that has existed among both previous Republican and Democratic administrations. That consensus basically revolves around the notion that engagement with China will lead a "fostering of domestic liberalisation".

Secretary Blinken's remarks, as the report states, seem to mark and end of this consensus in the Democratic Party. Much as the former Trump Administration did for the Republican Party.

It does not look like a favourable resolution for the ASX shares caught in the Sino-Australia crossfire is in sight anytime soon. As a major ally of the United States, it's unlikely that the Australian government will depart from the 'new US consensus' regarding China.

It remains to be seen how Treasury and others will adapt to this new paradigm in international relations between the two countries.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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