It’s obvious Donald Trump’s big gain is a game-changer of epic sizes, from the harsh effect in Asian economies to the frantic press speculation about what lies ahead.
The declines in Chinese securities and the yuan only demonstrate how investors are quickly rearranging their strategies for addressing global financial risks and opportunities. The money surged on the news Trump scored a , next term. US companies jumped, as did crypto prices. Provides on US Treasury securities shot higher, also.
The” Trump trade” that Asia has in mind is to take cover. A Trump 2.0 White House may certainly be more inward-looking, putting Asia’s export-oriented economy in harm’s way.
A large fire radius is present. Though aimed at China, Trump’s designed 60 % tariffs will destroy Japan, South Korea, Thailand, Vietnam and another trade-driven markets. The aftermath on shipping flows could be unimaginable.
According to Dubravko Lakos-Bujas, a planner at JPMorgan,” a significant increase in tariffs would reflect the most significant departure in policy from the latest administration and possibly the largest source of volatility.” The current macro environment is significantly different from what it was eight years ago, when the business cycle was in its mid-cycle, when the Fed did n’t care about inflation, and when pro-growth 1.0 policies were simpler to implement and had a greater impact on the bottom line.
Trump’s win over Kamala Harris is more of a “black swans” occasion for Asia than a “gray one.” Unlike the past, the latter is a repetitive but doubtful results. A “gray swan”, though, does have its own , serious consequences, too.
Unexpected effects might be a way to strengthen Xi Jinping’s influence in China. Trump may effectively strengthen it by attacking Beijing with such an aggressiveness that he essentially strengthens by compulsion to integrate with an Eastern economy with China at its core and not an America led by an uneven, mercantilist president who blames Asia for many of his country’s failings.
For Asia, the best-case situation is that Trump’s tax risks are more a negotiating strategy than a real accompli. In fact, Goldman Sachs economists predict that Trump may only establish 20 % tariffs on China and resist the urge to impose blanket charges on other countries.
Trump may turn the other means and impose taxes he has previously threatened to impose. Trump has already stated that there will be 100 % taxes on Mexican car exports.
How much is manufacturers in Japan and Korea hope to avoid such restrictions, especially given that Tesla’s CEO has Trump’s ear? At the very least, electronic vehicle charges will be stacked confidently against non-US manufacturers.
The , financial challenges  , may be even greater. One is that a penny march that has already irritated Asia will take a turn. For years, the economy’s “wasteball” impulses have shook international markets. It has lured enormous waves of global capital west, disadvantaging emerging-market markets in specific.
The difficulty, explains Tom Dunleavy, a companion at MV Capital, is that emerging markets “rely strongly on assets and have debts in money”. The majority of business and debt is also based in dollars, along with fuel. And he says that” the ratio of everything is going up.”
Regardless of the dubious reasoning behind it, the more packed a continued-dollar-strength business becomes as the result of the global fallout when depressed punters flee for their exits. And Trump was serve up some such situations.
Though Trump’s tariffs get the headlines, Asia is extremely worried about what his next president may mean for the Federal Reserve, the keeper of the world’s top supply money.
Trump put the techniques on the Fed during his 2017-2021 stay in the White House. Jerome Powell sabotaged his hand-picked Fed chair, and he went after him frequently. In 2019, Powell bowed to unrelenting force from , Trump, who also threatened to fire him.
That’s how the world’s most powerful economic authority added liquidity to a flourishing business that did n’t need new substances. Trump’s Fed meddling set the stage for the post-Covid-19 price surge to come. It also tarnished the Fed’s credibility in global markets.
For Asia, Trump’s Fed policies are especially worrisome. The region’s central banks are armed with the largest stocks of US Treasury securities. Japan alone holds$ 1.1 trillion of US debt, China$ 770 billion.
Together, Asia’s largest holders of dollars own about$ 3 trillion worth. Trump 2.0 would put at risk vast amounts of Asian state wealth if his fiscal policies push Washington’s debt far above today’s US$ 35 trillion.
Not to mention the ways China might retaliate, leading to cycle of tit-for-tat trade curbs. Or might Beijing make a move to dump sizable amounts of Treasuries to punish the Trump 2.0 gang?
Or what if Trump’s designs on altering the Fed’s mandate come to pass? A key plank of the” Project 2025″ strategy that the Heritage Foundation devised for a , second Trump term , is watering down Fed independence.
In a recent interview with Bloomberg, Trump took shots at Powell and his fellow policymakers. ” I think it’s the greatest job in government”, Trump said. 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 the White House has every right to compel the Fed to do its bidding.
Trump once remarked in August that the Federal Reserve had “kind of got it wrong” ( very interesting ). He went on to say that” I feel the president should have at least ]some ] 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 instinct than those who, in many cases, would be chairman of the Federal Reserve.
This could put the Fed’s economic role closer to that of the People’s Bank of China.
To be sure, the concept of central bank independence has been muddied. Take the , Bank of Japan, which has held interest rates at or near zero for 25 years. What truly self-governing central bank would do that?
Yet the Fed is a different story. The dollar serves as the foundation of global finance and trade. Trump frequently discussed using a weaker dollar to gain a competitive advantage during his first term. Any policy change that undermines confidence in the US government and the dollar makes the world system shakier.
A weaker dollar could fan inflation. That, on top of Trump’s tariffs, could put the Fed in a very tough spot as Trump looks over Powell’s shoulder. Economists are frantically debating how all of this might turn out.
” On the US dollar, Trump wants to revitalize US manufacturing and exports”, says Will Denyer, an analyst at Gavekal Research. He may try to manipulate the dollar lower because he recognizes that the strength of the US dollar is an obstacle to these goals.
However, Denyer says, “he has few good options. Given how dependent the US government and companies are on foreign capital today, it is difficult to use capital controls to deter foreign inflows. And if Fed chair Jay Powell persists until the end of his term in May 2026, leaning on the Federal Reserve to lower interest rates wo n’t be simple in the near future.
Trump might try to use the threat of tariffs as a negotiating tactic in an effort to revalue their currencies, Denyer adds. However, it is doubtful whether multilateral or even broader economic policy changes will significantly weaken the US dollar in the absence of broader economic policy shifts.
This, Denyer concludes,” will leave Trump to hope that continued disinflation allows the Fed to cut rates, weakening the US dollar. However, there is a sizable probability that loose fiscal policy and sticky inflation will keep , monetary policy , relatively tight, supporting the US dollar and confounding Trump’s aim of weakening the currency”.
Another irrational possibility: whether Trump will continue to flirt with defaulting on US debt. He declared to CNBC in 2016 that he would “know that you could make a deal” if the economy crashed. And if the economy was good, it was good. So, therefore, you ca n’t lose”.
Trump considered canceling Beijing’s debt while serving as president for the first time in light of trade tensions. With the US national debt twice the size of Chinese gross domestic product, it’s easy to see how that would make the 2008″ Lehman shock” seem quaint by comparison.
Asian assets are also weighed by the threat of geopolitical conflict. One example is what a Trump 2.0 foreign policy team might have for Taiwan.
Trump’s return is music to Vladimir Putin’s ears, giving the Russian leader greater scope to commandeer , Ukraine , once and for all. Compared with US President Joe Biden’s administration, Trump also seems less likely to come to Taipei’s defense if China moved against the island of , 23 million people.
Asia investors will also keep their bets guessing about the direction US policies in the Middle East will take. Trump, for instance, might give Israeli Prime Minister Benjamin Netanyahu more freedom to fight the conflict in Gaza. He’s also likely to tighten sanctions on Iran, adding fresh uncertainty to oil supply dynamics and, by extension, energy prices.
” Conceptually, the impact of a potential second Trump term on oil prices is ambiguous”, says commodity researcher Yulia Zhestkova Grigsby at Goldman Sachs.
As Trump 2.0 assumes power, other issues will concern Asian governments. Japan and Korea are concerned that Trump’s “grand bargain” trade agreement with Xi leaves other top Asian nations staring in from the distance.
All that’s clear, though, is that there will be fewer guardrails or inhibitions as Trump seeks to “make America great again” at Asia’s expense.