- John Moore/Getty Images
In a July global markets research report, Nomura analysts described the potential impacts on Asia’s economy and security under a Trump presidency.
Nomura’s “what if” exercise uses Donald Trump’s main campaign pledges to assess risks from protectionism, regional security, and US macro policy.
“A Trump presidency would no doubt hurt Asia’s GDP growth and could ultimately drive cost-push inflation, impart smaller trade surpluses, and looser macroeconomic policies,” Nomura analysts wrote.
Because Trump has said conflicting things during his path to securing the Republican presidential nomination, it’s hard to actually predict what will happen. But it’s interesting to consider some possibilities.
China and the US could see some trade friction — although analysts believe the overall economic impact would be limited.
Nomura analysts assign a “high probability” to the possibility of Trump declaring China a currency manipulator and to his pursuing more aggressive trade policies. They also note that geopolitical tensions could increase.
“In short, a Trump presidency may lead to a smaller trade surplus and more capital outflows due to increased trade frictions and geopolitical risks in the region,” Nomura analysts Yang Zhao, Wendy Chen, and Chang Chun Hua said.”However, we believe the impact should be limited, as China and the US have more common interests than conflicts in the region.”
Plus, while they note that a trade war is “possible,” they note that the potential for a “full trade war is low.” And even if there is one, they said, “it would unlikely lead to a collapse of fundamental cooperation between the two nations.”
The Philippines’ economy “stands to lose the most” in Southeast Asia in a Trump presidency.
“In Southeast Asia, we believe the Philippines’ economy stands to lose the most if Mr. Trump wins the presidency,” Nomura’s Euben Paracuelles, Brian Tan, and Lavanya Venkateswaran said.
On the economic front, they said, “if US immigration policies tighten, leading to fewer migrant workers, this could impact remittances inflows back to the Philippines.”
“The US is host to 34.5% of the total overseas Filipino population, and we estimate accounts for about 31% of total worker remittances,” they added.
Trump’s stance onbringing more jobs back to the US could affect “important business process outsourcing (BPO) sector, which caters mostly to US corporates and now brings in FX revenues that are projected to equal the size of total worker remittances (about 9% of GDP) in the next couple of years,” they said.
In terms of regional security, the US functions as the largest ally for the Philippines. A lack of US military presence in the disputed waters of the South China Sea, coupled with further Chinese aggression, could leave Manila vulnerable despite the Permanent Court of Arbitration’s landmark ruling.
On the positive side, the Filipino economy is likely strong enough to weather shocks, according to Nomura. “In particular, the new government is planning significant fiscal expansion to support public infrastructure spending.”
Taiwan could get hit by Trump’s anti-TTP position, and security risks could rise if the US military withdraws from Japan and Korea.
Trump has suggested that as president he would penalize countries he considers currency manipulators.
“Taiwan could become one of his targets given the US government’s long-standing concerns over Taiwan’s currency practices,” Nomura’s Young Sun Kwon and Minoru Nogimori said.
In terms of regional security, if the US withdrew from Japan and South Korea, Taiwan could become vulnerable to North Korean and Chinese threats.
South Korea could be looking at higher security risks.
“Overall, a Trump presidency would suggest downside risks to South Korea’s economy though the extent to which is at this point very hard to gauge clearly,”Nomura’sMinoru Nogimori and Young Sun Kwon wrote.
“We would expect Korea’s fiscalburden to grow. Meanwhile, on the Korean peninsula, where tensions have again risen recently, the withdrawal of US forces would dramatically increase geopolitical risks,” they added.
Trump has spoken in opposition to the Trans-Pacific Partnership, or TPP, and threatened to withdraw from North American Free Trade Agreement if key parts aren’t renegotiated. Trump has also committed to push South Korea to pay for “the full cost of the security guarantees provided by the US.” (Though that might just be the opening bid in a negotiation, Alastair Newton said.)
Today the US maintains about 28,500 troops in South Korea.
The pressure to equip South Korea with THAAD began aftera series of defiant North Koreannuclear weapons tests earlier this year.
As Nomura points out, a Global Times op-ed article (operated under China’s state-run People’s Daily) recommended that China respond to the move by cutting all economic ties with companies involved with THAAD.
Hong Kong could feel the reverberations of a deteriorating US-China relationship.
“Hong Kong is the entrepôt for a significant amount of business between China and the US,” Young Sun Kwon and Minoru Nogimori said. “Indeed, China and the US are Hong Kong’s two largest export destination.”
As such, they argued, Hong Kong would be vulnerable to worsening US-China relations, “not only because of its indirect exposure to China but also its weak starting position: we already forecast a recession in Hong Kong this year.”
Plus, if markets get worried about Trump’s protectionism and a worsening US-China relationship, any financial turmoil could spill over into Hong Kong’s financial-services sector and property markets – which together make up 25% of gross domestic product.
India could get hit by restrictions, but it could also benefit from foreign-policy ties and less competition from China.
Under a Trump administration, India’s economy may suffer from restrictions on legal immigration to the US.
“In 2014, India accounted for 70% of H-1B visas granted in the US and 86% of H-1B visas issued for technology firms alone,” Nomura’s Sonal Varma and Neha Saraf said. “Thus, an H-1B crackdown under Trump would lower the profitability of Indian IT companies (due to higher wage costs).” They said fewer US jobs for Indian citizens could therefore push India’s government to “create jobs domestically and exert downward pressure on domestic skilled-worker wages.”
Moreover, Alastair Newton, the cofounder and director of Alavan Business Advisory, a geopolitical consultancy to Nomura, said a Trump administration would most likely aim for a closer relationship with India. “This is because Trump believes that Pakistan is ‘semi-unstable’ and India is the only country that seems to be the ‘real check’ on Pakistan, because of their own nukes … and a very powerful army,” Varma and Saraf wrote.
Trump’s threat to slam punitive tariffs on Chinese imports into the US may create an opportunity for Indian exporters.
India competes with China in the textile, electrical machinery, and equipment industries. The US accounts for about 15% of India’s goods exports, andChina accounts for about 22% of US imports, while India has only 2%.
“That said, these gains could be partly offset by weaker global trade from US protectionism,” Varma and Saraf wrote.
Indonesia’s economy could hit a snag if the Trump presidency proves to be “an obstacle to further improvements in ties with the US.”
Trump’s rhetoric on Muslims could have an “adverse effect” on US-Indonesia relations and on the Indonesian economy, the Nomura analysts argue.
“To the extent that a Trump presidency proves an obstacle to further improvements in ties with the US due to isolationist rhetoric and/or, as Alastair Newton puts it, the risk ‘that MrTrump’s stance on Muslims could have a general adverse effect on US relations withIndonesia and Malaysia’this could have implications forIndonesia’s own economicoutlook,” Nomura analysts wrote.
That being said, economic risks could be lessened if Indonesia implements structural reforms and continues a commitment to liberalization.
“These reforms are in our view likely to continue and underpin our optimistic growth outlook despite a relatively weak external backdrop,” Nomura analysts said.
Malaysia’s biggest current advantage could end up turning into a sore spot.
The US accounts for about 10% of total Malaysian exports, and its share of Malaysia’s manufactured exports is up to 13%, greater than China’s share, which is shrinking. “This exposure to the US has been key in supporting Malaysia’s economic resilience,” according to Nomura analysts.
“Under a Trump presidency, however, this advantage may turn into vulnerability if any protectionism leads to less trade activity with the US,” they said.
They added that “the increase in global economic uncertainty would also likely be negative for private sector investment.”
Any increases in protectionism globally could hurt Singapore’s manufacturing and services sectors.
Nomura analysts argued that “for ultra-open Singapore, any increase in trade protectionism globally will likely be negative for its growth outlook, not only because it harms Singapore’s already struggling manufacturing sector but also its port services that handle re-exports from other economies to the US and to China, where we believe Mr Trump’s protectionist instincts are strongest.”
Singapore’s exposure to the US isn’t small: the US accounts for about 10% of non-oil domestic exports, over 5% of re-exports, and 11% of services exports.
Thailand could be the least affected in ASEAN, but its economy’s starting point isn’t that great.
As the Nomura analysts note, Thai exports have already dragged down economic growth.
“We expect this to persist because the military government is likely to remain at the helm and structural reforms are unlikely to be implemented given its focus on politics, while trade barriers are unlikely to be reversed as key trading partners … put on hold trade negotiations until a civilian government is in place,” they wrote.
BONUS: Australia could see some “moderate second-round macro” effects, as well as some markets impacts.
“As a Western nation with a strong and long-standing relationship with the US, and with a newly elected conservative government, we sense that a Trump presidency would pose few issues for Australia, with its focus more on other countries in the region,” Nomura analyst Andrew Ticehurst argued.
Still, he added, any greater economic and geopolitical uncertainty could lead to weaker equities and wider credit spreads as well as some foreign-exchange moves and changes in the Federal Reserve’s behavior – which could shake things up for Australia, he adds.
Plus, the Nomura analysts argue thatany serious deterioration in US-China relations could possibly lead to some issues for local politicians.
And now check out …