Trump’s return and the rekindling of economic fears in Asia
Asian manufacturers (and exporters) spent much of Wednesday last week mulling over what the next four years might bring. A second Trump presidency is expected to result in a great deal of uncertainty across different areas, given there was little coherency in policy messaging from Trump or his associates in the run up to last week’s presidential election.
Many believe his election portends doom for the United States, with some of the view this marks the beginning of the end (of American democracy, civil society and what have you). For those outside the US, and particularly in Asia, however, the impacts of a Trump presidency will likely be more nuanced.
Two issues stand out—trade and climate.
Lost in all the commentary around Trump’s comeback and the impending demise of the Democratic Party and what it means for American democracy, is an assessment of what Trump’s new term might mean for climate change mitigation. He’s a climate change denier, and has stated he’ll withdraw the US from the 2015 climate agreement. There is also talk of the US pulling out from the UN Framework Convention on Climate Change (UNFCCC). Broadly speaking, American recalcitrance to support (and lead) climate negotiations and climate financing efforts will impact climate change mitigation efforts.
More immediately, trade will be hit hard. Trump has said he will impose tariffs of 60% on Chinese goods. This will have direct ramifications for Chinese exporters, particularly those that have been slow to respond to the first round of tariffs and not developed alternate strategies. Many Chinese companies have already set up production facilities in economies such as Vietnam to deal with shifting trade realities. Global companies manufacturing in China have also diversified production and their supply chains to other economies in South and Southeast Asia.
Things are in a state of flux, and one really cannot tell what Tump’s second term heralds for Asia, but the evidence at hand points to the following impacts.
Several Asian economies rely heavily on exports for economic growth. Any additional tariffs on imports into the US can impact the region’s economic prospects. China will be impacted more so than others. It is already dealing with a slowing economy (growth in the third quarter was the slowest since early 2023). Slowing exports will impact Chinese manufacturers.
A few Asian economies could benefit, particularly as their exports to the US will potentially become more competitive than Chinese exports to the US. They will also be beneficiaries of increased Chinese FDI as Chinese companies set up manufacturing facilities outside China in countries like Vietnam, and potentially of FDI from elsewhere as global companies look to diversify production away from China.
These trends have resulted in ASEAN becoming a more important trading partner for both the US and China; and this trend will continue if the trade war intensifies. ASEAN has already been China’s largest trading partner for four years running, and its trade with the US has also grown rapidly in the past decade.
More thematically speaking, first, is it possible that Trump’s second term could result in a more permanent reconfiguration of trade or a reorientation of supply chains? And second, with the push for de-dollarisation among emerging economies globally, could Trump start using tariffs as a tool to punish economies looking to shift away from the US dollar? The next few months will tell.