Trump 2.0: Asia in a highly risky place in America’s inflation era – Asia Times
As Asia brackets for the fantastic” Trump business” experience of 2025, the instructions from 2024 are fast piling up.
The biggest session is how badly the inflation-is-transitory deal worked out for buyers. And for citizens and earth officials who don’t appreciate a Donald Trump 2.0 president.
The , US prices surge has some parents — from post-Covid supply chain disruptions to exceptionally low interest rates to an blast of over-the-top state signal. But Trump’s election is the mother-of-all part results from fiscal and monetary laws run rampant.
And Asia has the greatest front-row seats for what’s to come as Trump retakes the ropes with really big — and , questionable — programs.
The Trump-to-be-war is the subject of the most attention. But far more attention should be on the fireworks sure to come as Trump ‘s , policy promises , meet with a fiscal train wreck unfolding in slow motion.
On January 20, Trump did gain a federal loan exceeding US$ 36 trillion. And depending on which columnist you follow, Trump may be about to axe the debt in significant ways with huge tax cuts, or given the enormous knife Trump has given Elon Musk, to aggressively reduce it.
Which result might result in significant risks for world markets.
Door No. One could see payment rating companies stumbling over US debt as US debt rises to US$ 40 trillion. Washington was quickly lose its final Premium standing, from Moody’s Investors Service. Asia is directly at the center of the conflict that a downgrade may cause in the world’s relationship, stock, and money markets.
Door No. 2 may see Trump’s Tesla tycoon patron trying to trim , national spending , by firing government workers here and there. However, Musk’s state performance product won’t make a gash until Team Trump is ready to attack the military and privileges like Social Security, Medicare, and Medicaid.
Deregulation and excessive grants for sectors like Musk’s private businesses would have much more success. A lack of funding in productivity-boosting industries and technologies made the US so vulnerable to inflation.
” With Trump and some good appointees focused on reducing diplomatic deficits”, says Andrew Tilton,  , an analyst at Goldman Sachs,” there is a danger that — in a sort of’ whack-a-mole’ way — burgeoning bilateral deficits was eventually fast US tariffs on another Asian economies”.
Tilton adds that” Korea, Taiwan and, particularly,  , Vietnam , have seen big trade benefits versus the US”, things Trump 2.0 isn’t possible to let slip. As such, Asia’s leading trading nations does try to narrow surplus to “deflect” Team Trump’s focus away from them.
According to Barclays Bank analyst Brian Tan,” business plan is where Mr. Trump is likely to be most significant for emerging Asia in his second word as US leader,” inflicting “greater pain” on more empty economies.
Suffice it to say, America’s debt excesses also will challenge — and most likely plague — the Trump 2.0 era in ways the president-elect doesn’t seem to realize.
If ever there were a buckle-your-seatbelt moment for Asia, 2025 is it. The combination of runaway debt and inflation will limit the Federal Reserve’s ability to continue , cutting rates. And even if Fed Chairman Jerome Powell tries, fiscal realities will result in higher-than-hoped long-term rates.
The state of the banking system is one of the pressing concerns of the Fed. Banks have been huge buyers of Treasury securities. If medium and long-term government debt yields fall faster than expected, will institutions experience stability issues?
This could trigger supply issues, too. If interest rates move too low or move too quickly, is it reasonable to ask if banks can continue to buy Treasuries?
According to Yanmei Xie, an economist at Gavekal Dragonomics, one of Asia’s issues is that it’s unclear who Trump will be in the White House in roughly a month.
The issue with interpreting trade policy in a second Trump administration is that Trump has publicly supported both positions and that Trump has publicly stated his views on them. The common feature is tariffs or the threat of tariffs: 60 % or more on China and 10-20 % on the , rest of the world. But to what end?”
One possibility, she says, is that Trump will go with his once and possibly future trade czar, Robert Lighthizer, in pushing for a rapid, across-the-board disengagement from China.
Trump,” Xie says,” promised a four-year plan to phase out all imports of essential goods from China, including everything from electronics to steel to pharmaceuticals, and pledged to include strong safeguards to prevent China from bypassing restrictions by passing goods through conduit nations. In this scenario, there would be a ramping-up of coercive pressure on allies to join in the , anti-China , agenda.”
Trump might also use the threat of tariffs as leverage to strike a deal with China, despite the content of any such deal being very uncertain. This is the approach favored by Scott Bessent” – Trump’s pick for Treasury secretary –” who claims that Trump is in fact ‘ a free trader ‘ who will deploy tariffs to escalate to , de-escalate,” Xie notes.
Another major Trump wild card is a US dollar devaluation, which many Trump advisers see as the fastest way to regain broad-based manufacturing competitiveness.
” China is unlikely to cooperate with this agenda,” Xie says”, but the theory of the across-the-board tariff on all trading partners seems to be that it will also be used as leverage in currency negotiations.”
Trump has in fact mentioned a Plaza Accord 2.0, which lowers the dollar against the yen.
In 1985, US President Ronald Reagan’s Treasury secretary, James Baker, managed to convince the most powerful industrialized nations to push the yen sharply higher and the dollar lower. It was the high-point of Reagan’s mercantilist policy mix, which inspired Trump. The Plaza Hotel, a landmark hotel in New York that Trump once owned, was the location of the transaction.
When Trump was in office, advisors like Peter Navarro and then-Treasury Secretary Steven Mnuchin made hints about Trump’s desire for a “new Plaza Agreement” that would send the Chinese yuan into a soaring range. Now, as , Trump 2.0 , gears up, Trump seems ready to give the strategy another try.
Xi Jinping, the Chinese leader, would undoubtedly reject. Chinese officials are aware of how the 1985 currency deal caused Japan’s asset bubble in the late 1980s, which resulted in decades of economic stagnation. A stronger yuan would slam China’s crucial export engine, but many economists worry that a weaker dollar might cause inflation to go into the stratosphere.
One way Trump might try to engineer a weaker dollar is by commandeering , Fed policy , decisions. Trump and his advisers have made it clear that in January, the Fed’s independence will be in jeopardy. The” Project 2025 “scheme that Republican operatives cooked up for Trump 2.0 includes curbing the Fed’s autonomy.
Jerome Powell, Trump’s handpicked Fed chairman, had a challenging time during Trump 1.0. From 2017 to 2021, Trump cajoled Powell’s team with a verve never before seen from a White House. Trump attacked the Fed in speeches, press conferences and on social media. Trump even mulled firing Powell. That year, the Fed suddenly began cutting rates, adding liquidity to an economy that didn’t need it.
In October, Trump mocked Powell’s policymaking team”. I think it’s the greatest job in government,” Trump told Bloomberg”. Everybody talks about you like a god when you say, “let’s say flip a coin,” and you show up to the office once a month.
Trump also contends that presidents have the authority to compel the central bank to do their bidding. Trump said in August that the Federal Reserve is a very interesting thing and that it has sort of gotten it wrong frequently. He added that” I feel the president should have at least say in there, yeah. I feel that strongly. I think that, in my case, I made a lot of money. I was very successful. And I believe I have a better sense of instinct than those who, in many cases, would be chairman or the Federal Reserve.
Such maneuvers are of particular concern in Asia, where central banks have the largest stocks of US Treasury securities. Japan alone holds US$ 1.1 trillion of US debt,  , China , US$ 770-plus billion. The largest investors in Asia have approximately US$ 3 trillion worth. Many pieces of Asian state wealth could be in danger as a result of Trump’s 2.0 presidency.
Trump’s antics here could send the dollar sharply lower. Many investors argue, of course, that continued dollar strength isn’t necessarily great news for the global financial system heading toward 2025 either. In recent years, the dollar’s “wrecking ball” tendencies have shook global markets. It sucked up outsized waves of global capital, disadvantaging emerging economies in particular.  ,
When Tom Dunleavy, a partner at MV Capital, states that the risks posed by this wrecking ball dynamic are “particularly acute in emerging markets because” they rely heavily on commodities and have debt in dollars, he speaks for many. ” Oil, most trade and debt are still priced in dollars. And, he says”, The denominator of everything is going up.”
Regardless of the dubious logic behind it, the more crowded a continued-dollar-strength trade becomes, the worse the global fallout when depressed punters flee for the exits. If Trump’s Treasury team works to devalue the dollar, the U-turn could be particularly chaotic. The more chaotic a maneuver becomes the more inflationary it turns out to be.
Economists including former US Treasury Secretary Larry Summers are warning that Trump would be wise to abandon his campaign promises, in order to avoid sending , inflation , sharply higher.  ,
Summers was right about US inflation being of the longer-lasting variety. Now, he worries that Trump’s plans to impose giant tariffs, cut taxes, deport undocumented workers and mess with the Fed’s mandate will boost inflation.
According to Summers,” If he sticks to what he said during his campaign, there will be an inflation shock that will be far greater than what the nation experienced in 2021.”
Summers worries that the upcoming Trump stimulus may bring prices down to the nine-decade high of 9.1 %, which was recorded in June 2022. In 2025, US inflation almost certainly will rule the world economy, even if this proves to be too pessimistic.
According to Kelvin Wong, senior market analyst at broker OANDA,” the incoming Trump administration’s ‘ America First ‘ policy may see a further escalation of deglobalization that could lead to headwinds to global economic growth and spurt another round of inflationary pressure resurgence.”
Wong points out that Trump’s mercantilist policies may cause the 10-year US Treasury yield to increase faster than the 2-year rate because of higher inflationary pressures.
Far from being transitory, US inflation may be about to get a very powerful second wind, one sure to blow Asia’s way early and often in 2025.
