The election of Donald Trump to the United States presidency is ushering in an era of uncertainty for Asia and its economies. The region is waiting to see how much of the president-elect’s protectionist rhetoric will materialize into actual policy — like his threat to impose a 45 percent tariff on all Chinese imports to the U.S. Such a move would dent China’s gross domestic product growth and likely ignite a full-fledged trade war, with wide-ranging implications for the entire region.
Even before taking office, Trump is making his mark in Asia as a disruptor hell-bent on shaking up decades-old geopolitical protocol and openly challenging China. Just a little more than a week after accepting a congratulatory phone call from Taiwanese President Tsai Ing-wen on his election, Trump told Fox News that he might not respect the “one-China policy” that tacitly acknowledges Taiwan is part of China. China’s state-run Global Times newspaper fired back that he was “ignorant as a child.”
Such provocations come at a time when China is already grappling with an economic slowdown, a shrinking labor force, overcapacity and languishing exports — not to mention mounting fears about its perilously high credit levels and their potential to spark a financial crisis.
“After the U.S. election result, we believe 2017 will be even more challenging for Asia to stay on an even keel,” Nomura research analysts said in a recent report. “Simply put, we see too many large risks stacked to the downside. Asia’s economies are structurally slowing — its largest, China, is in a late-stage credit cycle — and after Mexico, we judge that Asia is most vulnerable to U.S. President-elect Trump’s inward-looking policies.”
China’s real GDP growth has been constant at 6.7 percent for three quarters and Nomura said it expects Beijing will strive to keep it at that level next year ahead of key political changes. But the bank characterized this stability as a “facade” and stressed the need for China to tackle large-scale state-owned enterprise restructuring, including the re-pricing of credit risk and market-opening policies.
“But all these reforms entail short-term pain for long-term gain, a trade-off that Beijing seems unwilling to accept,” they said.
Taking a somewhat more optimistic stance on its outlook, CLSA said a Trump presidency might actually pave the way for badly needed changes in China.
“Trump’s measures will have a negative impact on trade, but the silver lining is that it could push the government to accelerate reform and move away from the low-end manufacturing that has created the most trade tension. He could provide the sense of urgency to make the hard choices of slowing credit growth, cleaning up bad debts and restructuring state-owned enterprises. We expect reforms to accelerate in 2017,” CLSA analysts said in a recent report.
It will be easier and faster for Trump to deliver on trade and immigration issues rather than tax cuts and infrastructure-spending plans, which puts China at particular risk in the first half of the year, CLSA said. As for the 45 percent tariff on Chinese imports, it is still unclear how realistically Trump can follow through on his threat. Unless a national emergency is declared, the president can’t impose blanket tariffs of more than 15 percent — even then he can only do so for as long as 150 days. However, Trump can unilaterally impose tariffs on targeted goods, the financial services group noted.
Beyond China, there are several other dynamics in Asia set to dominate 2017 and shape the future of the region. Japan’s economy is showing signs of a pickup, although its longer-term prospects for growth are rather limited compared with other Asian nations. South Korea’s economy is expected to suffer in the wake of a political scandal and the impeachment of President Park Geun-hye. Hong Kong’s economic prospects are far from stellar and political friction with China — its number-one trading partner — is seen continuing.
Meanwhile, other countries are emerging as economic powerhouses. India’s GDP growth is expected to clock in at 7.1 percent in 2017 and accelerate to 7.7 percent in 2018, while certain Southeast Asian countries are becoming significant protagonists in the region.
“In the longer run, once the storm passes we see a growing divide as Asia’s striving cubs (India, Indonesia, the Philippines and Vietnam) unlock their full growth potential and replace the aging tigers (China, Hong Kong, Korea, Singapore and Taiwan) as the core of economic dynamism in Asia,” Nomura said.