The chatter across Asia pivots around preparing for Trump 2.0. Is Asia better prepared this time? The greatest worry pivots around the тАШTтАЩ word тАФ tariffs. тАЬTo me, the most beautiful word in the dictionary is tariff. It’s my favourite word. It needs a public relations firm,тАЭ Trump said, while addressing some 600 business executives in Chicago in October.
Most Asians do not get the joke. They are worried that higher tariffs and weaker global demand will impact AsiaтАЩs economic growth. тАЬTrumpтАЩs re-election has less of a shock factor given greater familiarity with his policies. Asia is also more resilient, due to the ongoing trends of US-China decoupling, shifts in global supply chains and lower Asian exports to China. Yet, Trump 2.0 will likely mean more policy uncertainty, which may be a negative for Asia,тАЭ says Nomura, a global financial services group.
No one knows for sure what Trump 2.0 would mean, given how unpredictable he is; much of what is being said can be described as intelligent guesses given his past record and his recent statements.
тАЬWhile the broader economic and geopolitical impact is negative for Asia, especially for China and South Korea, we see India and Malaysia as relative beneficiaries due to ongoing supply chain shifts,тАЭ say Nomura economists, Sonal Varma and Si Ying Toh. According to NomuraтАЩs economic analysts, tariffs and tax policy are likely to be the focus under Trump 2.0. The US administration may implement 60% tariffs against China, going by TrumpтАЩs widely-publicised proposals.
Arguably, China is directly in the line of US President-elect Donald TrumpтАЩs fire and India and the United States share deep economic and strategic interests, which may work in IndiaтАЩs favour as multinational corporations look to diversify their supply chains. But there are complications in the supply chain story which affects both Southeast Asia and India.
It is too early to bring out the champagne. In recent days, analysts in the ASEAN (The Association of Southeast Asian Nations), a political and economic union of 10 countries in Southeast Asia, have spotlighted potential concerns if the Trump administration does what it said it will do. тАЬSoutheast Asia is a critical hub in global supply chains, a major player in international trade, the worldтАЩs second-largest destination of foreign investments, as well as a focal point in the US-China strategic rivalry. TrumpтАЩs first presidency provides insights into what may lie ahead. Consequently, the region faces high stakes with the expected policy shifts during TrumpтАЩs second term тАж. ASEAN exports to the US rely heavily on Chinese intermediate goods (not to mention the re-routing and relabelling of Chinese goods going to the US via Southeast Asia) and Chinese exports to the US also use raw materials and intermediate goods from ASEAN. A sharp decline in Chinese exports to the US would also negatively impact Southeast Asian exports to China, which in turn would affect overall regional economic performance. In sum, the globalisation model that Southeast Asia has long depended on for growth faces an increasingly uncertain future,тАЭ noted Hoang Thi Ha and William Choong in a recent commentary in Fulcrum analysis of Southeast Asia, published by ISEAS тАУ Yusof Ishak Institute (ISEAS), a leading Singapore-based think tank.
The authors point out тАЬTrumpтАЩs proposed tariff hikes on Chinese imports тАФ and products with significant Chinese components тАФ combined with the threat of Chinese retaliation, would significantly heighten the risk that the worldтАЩs two largest economies may decouple.тАЭ They warn that ASEAN economies, of which China and the US are the largest trading partners, would be caught in the middle and that any blow to the Chinese economy will spill over to ASEAN countries that depend on Chinese consumption, export demand and tourism. Five of the region’s six largest economies in the ASEAN region currently run trade surpluses with the U.S. Indonesia, Southeast Asia’s largest economy, would suffer most because of its 24.2% export exposure to China, mainly of commodities.
There is another fear. That hinges around Chinese exporters diverting more goods to Southeast Asia if they are unable to send their wares to the U.S. Cheap Chinese goods, especially those arriving via e-commerce platforms, have been a big concern in Southeast Asia.
India could potentially gain from any re-orientation of supply chains. It is less integrated with the Chinese production supply chain compared to many other countries, possibly less impacted by higher tariffs against China. But India will not remain unscathed by a slowdown in global trade. Weaker trade growth worldwide could dampen demand for Indian exports, and have a ripple-effect through various industries within the country.
Donald Trump says he wants manufacturing jobs to return to the US and disentangle its supply chains from China. During his first term, Trump slapped tariffs of up to 25% on $250 billion worth of electronics, machinery, and consumer goods imports from China. Beijing hit back with similar measures against U.S. agricultural, automotive and technology exports.
The Peterson Institute for International Economics, a US-based think tank, has estimated that an across-the-board tariff of 20%, alongside a 60% tariff on China, would impact American families as well. It could cause a typical middle-income householdтАЩs costs to increase by more than $2,600 a year тАФ up from a loss of $1,700 in after-tax income based on a 10% and 60% tariff on worldwide and Chinese goods, respectively.
Many of the predictions about Trump 2.0 are liberally spliced with тАШmayтАЩ and тАШcould.тАЩ While campaigning for a second term in office, Trump promised to promote local manufactured goods by slapping high import duties on products entering the United States. Economists fear this may push the world into a trade war of tariffs and counter tariffs and would also not help the US.
Will TrumpтАЩs tariff proposal open opportunities for India, as some Indian economists predict? What if TrumpтАЩs favourite word does not help him fulfil his poll promises? What then? With Trump, you never can tell. Let us see what he does.
Patralekha Chatterjee is a writer and columnist who spends her time in South and Southeast Asia, and looks at modern-day connects between the two adjacent regions. X: @Patralekha2011
