Just when China’s economy seemed to be stabilizing, Donald Trump’s election as U.S. president poses significant new risks. Not just for Chinese growth, but the entire Asia region.
That’s because the president-elect campaigned on a policy platform with protectionism at its centre. Trump wants to slap punitive tariffs on Chinese goods and label the world’s No. 2 economy a currency manipulator.
Such a move would hurt Chinese exports. But it could also trigger a trade war if Beijing retaliates, catching other Asian economies in the cross-fire.
Other worries: a planned major regional trade pact, the Trans-Pacific Partnership, likely won’t get off the ground. Slower trade flows and rising uncertainty means less investment and weaker growth. Then there are controls on movement of people, the risk of capital repatriation back to the U.S. and major security concerns.
“Profound changes in U.S. trade and security relations with the region are likely and probably negative,” economists at Morgan Stanley wrote in a note.
Targetting China with trade barriers could pose an unpleasant choice for policy makers in Beijing: accept the hit to growth from weaker exports or respond in kind, economists at Goldman Sachs Inc. wrote in a note. A weaker Yuan (Chinese currency) could trigger acceleration in capital outflows, pressuring China’s international reserves and draining money from a slowing economy.
“One possible measure would be to allow a somewhat faster weakening of the Yuan, although from China’s perspective this or other trade measures could carry the risk of escalation,” the Goldman economists wrote.
An investor survey conducted in July by Nomura Holdings Inc. flagged a long list of worries under a Trump presidency: from a possible rise in trade protectionism to threats to regional security if the U.S. cuts its military commitments in Asia.
The conclusion is clear: after Mexico, Asia is most at risk.