Asian Economy Stands to Lose From a Protectionist Trump

The U.S. has voted Donald Trump as its 45th President, sending shockwaves throughout the world as many had expected Hillary Clinton to break the highest glass ceiling and emerge as the winner. Now that he is President, a cloud of uncertainty blankets over Asia and its economy as Trump threatened during his campaign that he would cancel the pending Trans-Pacific Partnership deal if he wins.

The TPP deal has been the goal of President Barack Obama but despite its potential benefits, including the generation of new jobs and a competitive advantage for U.S. firms in international markets, it has been opposed by Trump.

Trump has dubbed the TPP as a “terrible deal” and was firm about his protectionist stance throughout his campaign.  Trump – who also campaigned against immigration and globalization – has accused a handful of Asian countries for taking away jobs from the US.

Trump’s protectionist trade policy will certainly affect Asia, particularly China and other Asian countries, such as the Philippines, that have benefited from the outsourcing and offshoring activities of U.S. businesses.

George Magnus, senior independent economic adviser at UBS Group AG, says the $11 trillion Asian economy stands to lose from a more protectionist America.

Natixis Research says that the direct effect of protectionism on China will be that imports tariffs are very likely to be imposed on Chinese imports, which is of course bad for China. Trump has described China as a "grand master" at currency manipulation and has threatened punitive tariffs of up to 45 percent on the country’s imports, a step that Commonwealth Bank of Australia estimated would cut China’s shipments to the the U.S. by 25 percent in the first year.

For countries such as the Philippines, the country’s BPO industry, which has underpinned the economy for many years, could take a hit since Trump has threatened to increase the tax on U.S. companies outsourcing jobs to foreign workers. Based on data from the Central Bank of the Philippines, about 70 percent of the country’s BPO revenues were sourced from the US.

One of Washington’s most important economic and strategic partners in Asia is Singapore, which is likely to be affected under a Trump presidency. The US is one of Singapore’s biggest trade partners, and the island nation hosts a key US military logistics base and allows the rotational deployment of US littoral combat ships out of its naval bases.

“Any rise in trade protectionism and threats to global security will have a strong negative impact on Singapore’s open economy,” says Bernard Aw, a Singapore-based economist with IHS Markit. “Increasing volatility in global financial markets, including major swings in commodity prices may also affect Singapore indirectly.”

In a report, the Macquarie Group noted that the Singapore dollar is most at risk after a Trump win, because its central bank, the Monetary Authority of Singapore, would be inclined to cut rates given the already 'fragile' state of the domestic economy.

“With Trump holding an anti-free trade stance, we are likely to see negative impact on US trade and investment in Asia. As Trump looks to bring US businesses back to the homeland and punish companies outsourcing manufacturing abroad, it will be bad news for factories in Asia,” says Guo Yu, Head of Asia Research at Verisk Maplecroft. 

Yu notes that the death of the TPP deal is not something Japan wants to see. The TPP was projected to boost Japan’s GDP by 2.7% by 2030.

“Any sign that the US is now a less than reliable partner on trade will make Manila even more regionally-focused and turn it towards Beijing and Tokyo to fill the gap. Likewise, Malaysia and Indonesia will continue to look to China and other regional peers for investment and partnership,” concludes Yu.

Trump’s monetary policy

Trump’s surprising victory could also put more pressure on the U.S. Federal Reserve. During the campaign, Trump has often criticized the U.S. Federal Reserve, and in particular Janet Yellen, for being too dovish.

Trump’s problem with Yellen is that she has been supporting Obama and, thus, Hillary Clinton by keeping extremely lax monetary conditions. Before the polls, he said he would replace her if he were to become President. Yellen’s term as chair ends in early 2018.

On the campaign trail, Trump announced his support for low interest rates, but later he accused the central bank and Yellen of keeping interest rates low to help President Barack Obama and, by implication, Democratic nominee Hillary Clinton.

Since he has criticized Yellen for holding rates low, the market is betting Trump will bring higher inflation and interest rates. 

Higher interest rate could depress growth in Asian economies. Analysts believed higher US rates could pose a challenge to a number of emerging market economies - particularly across Asia, a top exporter to the US - by pushing up bond yields, augmenting capital outflows and depreciating currencies.

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