As the dust settles on the US election, American-owned businesses with operations in Asia and Asia-based firms that sell products and services to the US are left to ponder how much more difficult their trading environment will become over the next few years.
Trump’s focus on the trade surpluses of America’s trading partners could put some countries in a more vulnerable position of being scrutinised for their large surplus positions against the US – including China, Vietnam and Japan.
“As such, US companies with operations in these locations that export back to the US would need to take actions to pre-empt and tackle such risks,” says Teck Kin Suan, Head of Research at UOB. “These actions include further developing sales to non-US markets or moving some manufacturing capacity back to the US, although this would come with added costs.”
According to Fitch Ratings, the technology hardware, new energy manufacturing and automotive sectors are most at risk. The credit ratings agency believes Chinese manufacturers would continue to expand overseas supply chains to counter trade barriers but notes this would require significant investment.
Fitch’s analysis indicates a substantial impact on China’s economic growth under a scenario in which the US imposes 60% tariffs on goods imported from China and a 10% tariff on imports from the rest of the world.
Meanwhile, a potential rollback of US climate policies would dampen demand for electric vehicles and renewable energy-related products, affecting commodities including metals, mining and energy resources.
Adam Posen, President of the Peterson Institute of International Economics suggests Trump’s tariff increases could actually yield an economic gain for East Asia in the short term. US exports are likely to become increasingly uncompetitive, while offshoring should continue to flow into the region from China, Europe and the US.
“But the longer-term damage his policy tactics will do in undermining the open world economy will quickly overwhelm any benefits,” he says. “This will increase uncertainty for businesses and governments in the region.”
David Mericle, Chief US Economist at Goldman Sachs expects an average 20% tariff increase on imports from China and new tariffs on automobiles, adding that while a 10-20% across-the-board tariff is possible it is not the bank’s base case.
America’s trade deficit widened in September and the August deficit level was revised up.
“Lessons from the last trade war suggest that tariffs will likely reduce investment by raising input costs, prompting foreign retaliation against US exports and creating uncertainty about the risk of further escalation,” says Mericle.
Studies consistently find Trump’s proposed tariffs would have a negative impact on the US economy observes Erica York, Senior Economist and Research Director at the Tax Foundation’s Centre for Federal Tax Policy.
“Another major downside is the geopolitical pressure exerted on foreign governments to respond with retaliatory tariffs,” she says. “Most private forecasts of the effects of US-imposed tariffs model the impact with retaliation, ranging from tit-for-tat to more targeted responses. Estimates suggest retaliation could more than double the economic losses from US-imposed tariffs.”
Of course, it is an ill wind that blows no one any good. For example, it has been reported that industrial park developers across Southeast Asia are recruiting Chinese speakers and identifying land that could be suitable for factory development in expectation of a major shift in supply chains.
One developer told Reuters there had been a surge of enquiries from Chinese customers since it became clear that Trump had a real chance of securing a second term and that relocation to countries such as Thailand and Vietnam was likely to accelerate.
