Maganomics is coming for Asia, but it may not be as bad as feared

A MORE protectionist America would be bad for Asia – but it need not be disastrous.

The US presidential election is days away, and markets are starting to contemplate what a second Trump administration might mean.

Betting markets currently favour former president Donald Trump with more than 60 per cent odds, while Vice-President Kamala Harris trails at 37 per cent. The implications of a Trump comeback for Asian economies could be significant.

Trump has proposed a 60 per cent tariff on Chinese goods and a 10 to 20 per cent across-the-board tariff on imports from other countries. This would have a negative impact on Asia’s exports and hurt the region’s economic growth if implemented. Asian currencies would depreciate to blunt the impact of the tariffs, and there could be disinflation in Asia, especially if China diverts its exports to the region. For the US, the increased tariffs would be inflationary.

Tariffs are good for negotiation

However, it is unlikely that these blanket tariffs will be fully implemented. Going by how the first Trump administration (2017-2021) operated, his second term would likely be similarly transactional. Trump has mentioned that tariffs are good for negotiation, so the threat of imposing tariffs can be a strategy to extract concessions from Asia. The difference, this time, is Trump’s sights will not be solely on China.

So, what kind of deals will a second Trump administration want to wrangle out of Asia? A useful starting point is to understand what “Maganomics” – under his broad Make America Great Again (Maga) movement – is ultimately trying to achieve: the reindustrialisation of the US.

In this regard, the threat of tariffs, favouring low interest rates and a weak currency, cutting corporate tax rates, reducing regulation including environmental protection, and allowing unrestricted energy development to drive oil prices lower, can all be seen as strategies to achieve that goal. That’s why the Trump administration’s focus will be different for each economy in the region.

For China, it will be to ensure the Phase One Trade deal is honoured, and for China to commit to purchasing more products from the US. In addition, the threat of high tariffs is to convince multinationals, including Chinese companies, to set up manufacturing production in the US to produce for the domestic market.

There is also the issue of a weak Chinese yuan, which Trump will want China to address, though it is unclear what can be done unilaterally. As in his first term, Trump will be willing to label China a currency manipulator to get his way.

India has the highest import tariffs of any major economy, according to the World Trade Organisation. Trump is advocating for a reciprocation of tariffs applied to American products, which would be a threat to the Indian government’s Make in India initiative.

During Trump’s first term, the US and India engaged in trade negotiations but failed to come to an agreement. Improved access for American agriculture products, which face very high tariffs in India, is one concession Trump will want to extract.

If Trump does win the White House again, negotiations are likely to be revived, with India more willing to conclude a deal after its recent free-trade pacts with Australia and a group of four European nations.

Vietnam has been a major beneficiary of the China-Plus-One strategy, with its exports to the US doubling since 2018. As a result, the US’ trade deficit with Vietnam, at US$105 billion in 2023, is the third largest after China and Mexico.

Vietnam is the most vulnerable in the region to tariffs, given its large reliance on the US market. During Trump’s first term, he pushed strongly for Vietnam to import more American liquid natural gas, in order to balance the trade deficit. Energy cooperation is likely to again feature heavily in Trump’s second term.

South Korea has a free trade agreement with the US, but that did not stop Trump from threatening to withdraw from it during his first term. The agreement was renegotiated and signed in 2018, and Trump is unlikely to revisit it.

However, Trump will likely demand that South Korea increase its defence payments and move some semiconductor manufacturing into the US. Taiwan can expect a similar treatment.

Case of Singapore

Singapore also has a free trade agreement with the Americans. Unlike other economies in the region, Singapore imports more than it exports to the US. This should help shield Singapore from any proposed tariffs.

For all Asian economies, getting a deal done early and quickly could help to minimise disruptions and allow companies time to adapt and respond.

The United States may be the largest market in the world, but China and India have a large and growing middle class, estimated at 900 million and 470 million-strong respectively. Multilateralism may be waning, but Asia could take the lead in working closer together, and a second Trump term could be the spur that accelerates economic integration in the region.

The benefits of closer integration within Asia could help to mitigate the costs of Maganomics.

The writer is head of Asia research at ANZ