2017: ‘TRUMP EFFECT’ CAUSES HAZY OUTLOOK IN ASIA

Stumped by Trump? A lot of forebodings in Asia, Europe and the Middle East greeted Donald Trump’s imminent presidency. In terms of real estate, Asia is expected to suffer if Trump goes through with his tough stance against globalisation. The big questions are: How far would he go through with his campaign promises and are there bright spots? The death of the TPPA is already a sure thing.

Text by Jan Yong

The only thing certain about Donald Trump’s presidency is the uncertainty he has created. As a master dealmaker, being unpredictable is his trump card. If he plays it well, all goes well; if not, all hell breaks loose with the worst case scenario of financial markets “never” recovering from the shock, as predicted by Nobel Prize-winning economist Paul Krugman. Markets, however did recover at the time of writing except for the volatility of emerging markets’ currencies.

The optimist in us would like to believe that rational thinking would prevail in Trump’s camp. But just in case things don’t work out, here is the worst-case scenario followed by the best-case scenario for Asian economy in 2017, which is perceived by many to be very much tied to Trump’s campaign promises:

WORST-CASE SCENARIO

TRADE WAR WITH CHINA
If the Trump administration imposes tariffs as high as 45% on goods made in China going into America, the effect will be higher-priced goods for consumers in America, loss of jobs in China and other production centres as demand dampens.

CANCELLATION OR RENEGOTIATION OF ALL INTERNATIONAL TRADE DEALS IN FAVOUR OF THE US
Top of the list to be scrapped is the Trans Pacific Partnership Agreement (which in any case, both Democratic and Republican candidates have said they will cancel). The biggest losers are Vietnam and Malaysia whose exports are set to benefit the most if the TPPA goes through.

REDUCTION OF CORPORATE TAX TO 15% FROM 39%
This and a tax holiday for repatriated profits will very likely attract American investments back to the US, thus pulling out substantial FDIs from emerging countries. Very likely, the outflow of funds back to the US will be substantial.

RISE OF ECONOMIC NATIONALISM
Economic nationalism rears its ugly head with each country putting in place protectionist measures in the face of increasing nationalist policies. Globalisation would encounter a setback that will take years to reverse.

WEAKENING OF EMERGING COUNTRIES’ CURRENCIES
As the US Dollar strengthens on higher interest rates amid more returning US investments and the greenback’s continued ‘safe haven’ status, the outflow of funds will destabilise the economies of emerging countries and weaken their currencies. However, this would prove to be good for exporting countries like China, India, South Korea and Taiwan as their lower currencies would make their exports cheaper.

BEST-CASE SCENARIO

BILATERAL IN PLACE OF MULTILATERAL PACTS
In his acceptance speech, Trump has said: “We will seek common ground, not hostility”. This may signal a softer approach than his campaign’s rhetoric. As a businessman with a mission to make America great again, it would be in his interest to make deals with other nations that are a win-win for all. Bilateral negotiations with all of America’s trade partners with fairer terms for all parties with a view towards stimulating global growth would be a good start.

DEREGULATION TO STIMULATE US ECONOMY
Being a true blue capitalist, deregulation is expected across a broad spectrum of industries especially finance and energy. This will stimulate the industries and give a boost to the US economy. When the US economy does well, demand from the US would rise and provided import tariffs and interest rates aren’t too high, there will likely be a net positive effect globally.

CHINA & INDIA PROPERTY NOT AFFECTED
According to Colliers, China and India’s growth and domestic demand for property are so strong that the impact of Trump’s policies there are limited.

CONTINUED CROSS-BORDER CAPITAL FLOW
JLL predicts that the trend of rising cross border capital flow within Asia Pacific will continue irrespective of Trump’s policies.

CHINA WILL DRIVE ASIAPACIFIC GROWTH
Lack of America’s leadership in Asia-Pacific would mean that China would take up the slack. In fact, during the Asia-Pacific Economic Cooperation (APEC) meeting in Peru in November, China’s President Xi Jinping has again pushed for the adoption of the Regional Comprehensive Economic Partnership (RCEP), a pact similar to the TPPA but which excludes the US, as a pathway towards regional free trade.

China can now freely write the rules of trade for the region without the intervention of the US. This complements Xi’s other initiatives such as the One Belt, One Road (OBOR) infrastructure plan and the Beijing-led Asian Infrastructure Investment Bank (AIIB). Australia, Malaysia and Vietnam have already signalled their intention to shift to RCEP.

US COMPANIES FORCED TO RELOCATE TO ASIA
Lastly, and this is arguably the best news for Asia, if TPPA is scrapped and replaced by RCEP, which could be as early as 2017, US goods will face higher tariffs to RCEP countries which include Japan, China and India. This would spur US companies to relocate some of their operations in Asia in order to take advantage of RCEP. As one commentator says, “You need to be [physically] in Asia to service Asian markets.” This spells good news for Asian properties.

BIGGEST WINNER –CHINA?


It is clear that with or without Trump or America’s involvement, the rest of the world will continue to work towards globalisation, led by China. You can’t help but marvel at the reversal of roles – imagine how China, formerly a Communist country will potentially be the world’s biggest proponent of capitalism and globalisation. The march towards free trade can’t be stopped by one man or one country.

The rational thing to do, as Jack Ma, Founder and Chairman of Alibaba Group, points out in a TV interview post-election is for America and China to work together for the common good such as creating jobs, growing the economy, and encouraging entrepreneurship. Ma voices out his confidence that America will eventually do so.

At the end of the day, quite ironically, Trump’s threats of dismantling the TPPA and raising tariffs on China’s goods may have played right into the hands of the very country which he sees as America’s greatest competitor – China.

Having said that, January 20th, the day Trump will be sworn in as the 45th President of the United States is yet to come, and if blind Bulgarian clairvoyant, Baba Vanga, also known as the Nostradamus of the Balkans, were to be believed, China will become the new super power by 2018, bringing an end to US hegemony. Another tiny detail – she also says outgoing President Barack Obama will be the last US president. Of course, hardly anyone believes that last bit. Her predictions after all, are only said to be about 85% correct (well, that means she’s hit the mark more often than some economists and analysts).

 

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