Many executives received a shock this week as Donald Trump rode a surge of populist sentiment to become the 45th president of the United States. With a combative personality and little policy knowledge, he is likely to be the most unpredictable president in American history.
It is difficult to determine exactly what Trump will do in office because his campaign was remarkably thin on details. However, he articulated several points that shed light on how he is likely to engage with Asia.
Here is a brief synopsis of what you should expect, and what you should do:
Given that China played such a dominant part in Trump’s election campaign, companies should expect him to put the country in his crosshairs. In a best-case scenario, the US’ new president will try to drive a hard bargain on trade. In a worst-case scenario, he will start a trade/currency war. The first salvo in this process is likely to be branding Beijing a currency manipulator. Under existing US trade laws, this would allow the imposition of tariffs of up to 45% on goods imported from China. Beijing’s response could include tit-for-tat imposition of its own tariffs, dramatic currency depreciation, protectionist domestic policies, and an intellectual property grab. In any case, the results will be damaging for companies that operate in or trade with China. Executives, especially at American companies, should conduct contingency planning exercises to determine the margin impact they would experience in a tit-for-tat scenario.
Japan and South Korea
President Trump is decidedly more isolationist than his predecessors. He has brought into question America’s commitments to its allies, creating anxiety about the agreements underpinning East Asia’s security. If Trump pulls back from commitments to Japan and South Korea, both governments will be forced to divert money away from social programs to build their arsenals and provide for their own defense. This will not only weigh on businesses that rely on public spending but also increase the chances of conflict in the Korean peninsula and the sea west of Japan. Executives should consider how a reduction in spending on government programs (e.g., public healthcare, unemployment insurance) would impact their businesses in Japan and Korea.
With China’s clout rising and the US’ commitment to the region in question, several Southeast Asian countries have already started to hedge their bets and draw closer to Beijing. If the Trump administration dials back freedom of navigation exercises in the South China Sea and scraps the Obama administration’s Pivot to Asia, this process will accelerate. ASEAN leaders will divert money from social programs to build their arsenals even as they develop closer trade and investment ties with China. In this context, Manila’s recent overtures towards Beijing look quite prescient. Executives should evaluate how intensifying competition from Chinese companies and a reduction in spending on government programs (e.g., public healthcare, unemployment insurance) would impact their businesses in ASEAN.
India will be relatively unaffected by Trump’s victory in the US. The country is largely shielded from volatility in capital and trade flows. Indeed, Trump’s policies are less likely to affect Indians living at home than it is their countrymen living in the US. If Trump follows through on his plans to tighten immigration laws, many Indian professionals currently in America may be forced to leave the country. Executives should focus their efforts on recruiting Indian professionals working in the US; as pressure rises, many talented individuals will be looking for other international postings.