While much is unknown about the global economic consequences of Donald Trump's victory in the US presidential election, he has proposed some policies that would have a significant impact on Asia-Pacific countries—especially China.
Tougher trade stance could take a toll
Trump's campaign rhetoric suggests he would take a more restrictive trade stance, which could be a blow to export-reliant countries like Korea, Malaysia, Taiwan, Thailand and the Philippines. India and Indonesia may be less affected, given the smaller role exports play in driving local growth there. The Trans-Pacific Partnership (TPP) also seems to be off the table for now, which hurts export prospects for Australia, Malaysia, Japan and Singapore, among others. We could also see a massive increase in Asia's overall defense spending—particularly in Japan and Korea.
Potential trade war puts China in the crosshairs
If Trump succeeds in imposing his proposed 45% tariff on Chinese exports to the US, trade flows would collapse over time, with Chinese exporters potentially forced to exit US markets. Keep in mind that China is the world's largest exporter, with around 20% of its total exports going to the US in 2015. In the short term, China could counter some of this downturn by relying on its growing domestic market, and it does have some policy ammunition to support growth. China has also been increasing its outward direct investments to the US, which may even help Trump protect some US jobs. Nevertheless, a unilateral increase in import tariffs would not only hurt China's exports to the US, but also US exports to China; this could be detrimental to growth in the entire Asia-Pacific region and globally.
In the long run, these issues may give China greater incentive to continue rebalancing away from exports, and to diversify more into emerging markets. This could strengthen China's role in the region, especially with regard to the Regional Comprehensive Economic Partnership, which includes most countries in Asia-Pacific—but not the US.
Will China be labeled a currency manipulator—or not?
During his campaign, Trump hurled accusations of "currency manipulation", claiming that China is devaluing its currency at the expense of the US economy. In fact, China has actively been trying to prevent its currency from depreciating, and the latest US Treasury report to the US Congress states that China only met one of three criteria needed to earn the currency manipulator label. It is important to note that a sharp renminbi depreciation would be destabilizing not just for China, but also for other Asian currencies and the US as well.
The Impact of a Trump Victory on Asia
A stronger US dollar index is becoming less favorable for global trade and Asian countries alike*
*Measured by a simple average of exports from China, Korea and Taiwan as the region's bellwethers for the global industrial cycle. Past performance is not a reliable indicator of future results. Source: Datastream, AllianzGI Global Economics & Strategy as of 11/10/16.
Important Information
The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.
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