Month: November 2016

Trump and Asia

Allow me to add a few lines to the online explosion of views on the meanings of a Trump Presidency. I focus here on implications for Asia, the world’s largest and fastest-growing region, and its relationship to the US.

It is difficult to say much concrete on this issue since–as in so many other areas–the intentions and capabilities of a Trump administration are still unknown. Trump has spoken a fair bit on Asia, but whether that adds up to a coherent view is another matter. Still, a few observations are possible:

Mr. Trump has spoken on numerous occasions about the role of China (and Japan) in the decline of US manufacturing employment. There is evidence (see, e.g. papers by David Autor and colleagues) that increased competition from China has caused declines in employment and wages, and that labor market adjustment can be painfully slow. Nevertheless, Trump’s focus seems misplaced and the notion that a sharp increase in tariffs is a solution seems misguided.

  • China’s growth model is rapidly changing and, with wages and innovation rising, it is no longer the dominant player in low-cost manufacturing it once was. If the idea is to use tariffs to protect American manufacturing jobs, they would need to be applied much more widely to cover countries like Vietnam, Cambodia and Bangladesh. Is that a direction we would want to go? In any case, isn’t what could be done limited by US membership in the WTO.
  • Tariff hikes will surely be met by similar increases against US exports, harming exactly those sectors of the economy where the US has a competitive advantage and which drive domestic growth. Such a trade war would also potentially lead to a sharp slowdown in global growth, rebounding onto the US economy.
  • The notion that China is manipulating its exchange rate to have an unfair trade advantage is also several years out of date. These days, China is manipulating its exchange rate, but this time to keep the renminbi from rapidly depreciating. Does a Trump administration want an end to that? There seems little support foor the idea that the RNB is now fundamentally misaligned
  • Much more attention should be paid (and should have been paid under past administrations) to ensuring that US workers can compete successfully in high-skilled manufacturing and services. Infrastructure is part of that story, as is improved health and education. It seems doubtful that any of these will be the focus of the Republican-controlled Congress.

An emerging issue regarding China is its rapidly growing foreign direct investment in advanced economies. Germany, the UK and Australia are all seeing backlashes against China’s purchases of domestic firms, especially by SOEs and in high-tech areas. It seems likely that similar issues will arise during the next four years, and one can imagine that a Trump administration will take a hard line against such purchases, especially since he would be uninterested in easing the path for US FDI in China.

More generally, we are likely to see the US role in Asia decline over the next four years. The TPP is dead (it was anyway on life support). And, as the Singaporeans and others have noted recently, this is seen as a sign that he US is an unreliable partner. The rise of Trump is likely to strengthen that view exponentially. Countries such as Malaysia and the Philippines are already looking increasingly toward China and such moves could quickly pick up speed. Will Japan look to step in more forcefully to fill an emerging void?

A Trump administration will also likely take a disinterested, or antagonistic, stance toward global economic institutions like the IMF and World Bank. This may create space for a greater role for China and other emerging markets, while decreasing the overall effectiveness of these institutions. Trump is also unlikely to participate in new China-led IFIs, including the Asian Infrastructure investment Bank.

On the other hand, a Trump administration is likely to care far less than President Obama about human rights issues in China, drug wars in the Philippines, or high-level corruption in Malaysia. Whatever one thinks of this stance more broadly, it does suggest that deal-making may still be possible. How many Trump hotels can Asia use?

There are other critical issues outside the realm of economics, that I will leave for others more expert than I am. For example, the notion floated by Trump, of a nuclear South Korea and Japan would have complex and far-reaching implications, which are unpleasant contemplate.