After Donald J. Trump beat the odds to win the 2016 United States presidential election and become the country’s 45th leader, Asian governments and companies are holding their breath as they await the global economic repercussions of the historic result.
For one, Trump's upset election victory cracks is likely to open pressing strategic and economic questions in U.S.-China ties, and has likely surprised and worried Chinese leaders, who prize stability in relations between the two powers.
Trump had lambasted China throughout the campaign, drumming up headlines with his pledges to slap 45 percent tariffs on imported Chinese goods and label the country a currency manipulator his first day in office.
He has also questioned U.S. security commitments to allies and undercut long-held bipartisan U.S. foreign policy norms, such as suggesting that Japan develop nuclear weapons, all stances that if he follows through on could upset the regional security balance in Asia.
Asian stocks plummeted after the results of the election were know, but within a day they had rallied. MSCI's broadest index of Asia-Pacific shares outside Japan bounced 2 percent after slumping 2.4 percent on Wednesday as global markets plunged on signs that Trump was sweeping to power. The Nikkei emerged even stronger, jumping 7 percent at one point after sinking 5 percent on Wednesday.
Among the more attractive prospects of a Trump presidency are generous tax cuts and higher infrastructure and defense spending, along with deregulation for banks.
However, Trump's victory in the presidential election will deepen Asian allies' anxiety about Washington's commitment to post-war security arrangements in the face of a rising China and volatile North Korea, and could bolster calls from conservatives in Tokyo for a more robust defence policy. His "America First" rhetoric and calls for allies to pay more of the cost for U.S. troops in the region or face their possible withdrawal have worried officials in some Asian capitals.
TPP AT RISK
Also at risk is the Trans-Pacific Partnership (TPP), as his election rhetoric included vocal opposition to the 12-nation pan-Pacific trade pact that Washington has regarded as its “pivot” to the region. Whether he will continue to toe this line during his presidency remains to be seen.
“It is unlikely, in the near future that there will be changes to legislation. Of immediate concern is the impact on existing trade treaties and the implementation of the TPP. During his campaign, Trump had repeatedly promised his supporters that he will renegotiate or even terminate existing trade treaties and TPP,” said Winston Seow, partner and head of corporate at Withers KhattarWong
If the U.S. does take a step back when it comes to economically engaging with Asia, it would offer China the chance to step in.
“What is likely is China will see the opportunity to further engage in the region while the United States withdraws. China's influence in the region will also strengthen as it continues to negotiate and make progress with the Regional Comprehensive Economic Partnership (RCEP),” noted Eugene Lim, principal at Baker & McKenzie.Wong & Leow.
The Republican Party now controls both houses of Congress and the White House, which means that the gridlock in Washington will soon be broken.
Among the key policies on Trump’s policy agenda that will affect financial markets include the loosening of regulations on the financial services industry, as well as tax reform on individuals and corporations.
“Nonetheless, the running theme behind the Trump presidency is uncertainty,” said Seow. “A clearer picture will likely emerge when the new Congress meets in the new year.”
KEEP ABREAST
Given the nature of Trump’s campaign, it is too early to say which, if any, of the policies and ideas laid out in Trump’s campaign trail will be followed through, and to what extent.
“Clients should keep abreast of policy changes as they come, so as to better navigate through any challenges that may arise from shifts in policies,” said Seow.
At this point, it is imperative for companies to start preparing for potential challenges brought about by a volatile period before they have a good idea of the administration, even though there are limitations of what the U.S. president can effect through executive orders, said Seow.
He added that companies should immediately research and implement a risk management approach which identifies the potential scenarios for policy changes in the next four years, so that they can better react to the effects of policy changes in Washington with global ramifications for individuals and companies alike.
Asia will indeed keep a very close eye to see how Trump unfolds his trade policies and whether there will be any moderation toward a more inclusive policy that will continue to engage with the global and Asia Pacific economy.
“In the meantime,” Lim said, “businesses will have to operate in an environment of uncertainty, and the U.S. risks losing its leadership position in international trade while allowing other major economic powers to fill that vacuum.”