Asia Frets over Trump, But There’s an Economic Upside

Anthony Fensom

Economics, Asia

Trump has plenty of nerves to soothe before he gets the keys to the White House.

Donald Trump’s surprise election win sent shockwaves through Asian markets, while his apparent intent to cancel the Trans-Pacific Partnership (TPP) has not helped sentiment either. But providing he avoids provoking a trade war with China, a Trump administration could actually be beneficial to Asia’s economy.

Here is a quick look at the positives and negatives for the world’s most dynamic economic region.

Positives: U.S. Economic Growth

A stronger U.S. economy would not only benefit Americans. Providing Trump does not follow through on threats to slap tariffs of up to 45 percent on Chinese imports, Asia’s major exporters, including China, Japan and South Korea, would all benefit should America’s consumers increase spending, along with the promised boost to U.S. infrastructure.

Accounting for nearly a quarter of global gross domestic product, any pickup in the United States, the world’s largest economy, would help propel global GDP higher and lift millions more out of poverty in Asia.

The last two presidents to expand America’s role in the global economy were Clinton and Reagan, with U.S. GDP accounting for around 32 percent of the global economy when Clinton left office. (It was 34 percent under Reagan). Reversing that slide would help global trade start recovering and the world economy get back to at least trend growth, after two years of subpar performance.

Stronger Dollar

A stronger dollar will make Asian imports cheaper, benefiting a number of major Asian exporters to the United States including China (20 percent of total U.S. imports), Japan (6 percent), South Korea (3 percent), India (2 percent), and Vietnam, Taiwan and Malaysia (all below 2 percent).

The expected weakening of Asian currencies should be of particular benefit to Japan, the world’s third-largest economy, given the link between a lower yen and higher company profits and Japanese stocks.

“Approximately 14 percent of the profits that Japan Inc. makes comes from North America-based production, so Trump’s promise of a sizable cut in corporate taxes could well add at least a couple of percentage points to Japanese earnings next year,” according to Jesper Koll, CEO of WisdomTree Japan.

Negatives: Trade Shocks