It Really Could Happen... What Would President Trump Mean for Asia? - Vivek Kaul's Diary
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It Really Could Happen... What Would President Trump Mean for Asia?

Nov 7, 2016

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In less than a week, Americans will elect a new president, and it's close. Donald Trump and Hillary Clinton are virtually tied in the latest round of polls. And that could be very bad news for Asia.

We've written before that Hillary Clinton wouldn't be a great friend of Asia. And Donald Trump might be worse.

Yes, he could win

For many months, it's seemed very likely that Hillary Clinton would win the U.S. election. And she probably still will. But the latest round of revelations - relating to her email problems - have hurt her chances.

In August, I told you about the U.S.-based Iowa Electronic Markets. Since 1988, this has been a venue of small-scale betting on the outcomes of U.S. elections. This so-called "prediction market" has done very well forecasting various elections - better than pollsters, in fact.

Back in August, you could buy a Democrat (Hillary Clinton) share in the Winner-Take-All market for 77 cents. Then if the Democrats were to win the largest percentage of the U.S. popular vote in the presidential election, you'd get US$1 back.

You could also have bought a Republican (Donald Trump) share for 25 cents in August, which would pay out US$1 with a Trump victory.

But in recent days, Hillary buyers are hurting, and Trump longs are happy.

What the Prediction Says About U.S. Elections

In this Winner-Take-All market, Republican odds have improved dramatically in recent days. The price of a Republican share has jumped to 40 cents, reflecting substantially higher odds of winning. The cost of a Democrat share, reflecting the party's odds of winning the election, has fallen to 62 cents.

(In the U.S. presidential election system, the popular vote doesn't really matter. The election is more like a series of winner-take-all elections for each state. It's theoretically possible for a candidate to win the popular vote and lose the election. However, the popular vote as reflected in the Iowa Electronic Markets is an important reflection of overall sentiment towards the candidates.)

What President Trump would mean for Asia

As we've written before, if Donald Trump becomes president - and if he follows through on everything he's said - it would hurt Asia.

Trump has equated American "economic independence" with getting out of long-standing trade arrangements. He's called NAFTA - the free trade agreement between the U.S., Canada and Mexico and a centrepiece of the relationship between America and its neighbours - "the worst trade deal in the history of the country."

He's also said the Trans-Pacific Partnership (TPP), a deal that includes a lot of Southeast Asian countries, is a "terrible deal" for the U.S. And he's threatened to cancel the pending trade deal if he becomes president.

Ending, or drastically changing, any big trade deal would be a blow against globalisation - and globalisation has been very good to Asia. The region's emerging economies have been a major beneficiary of the addiction of the American consumer to buying things. Factories in Asia can only continue to feed the American consumer monster with cheap stuff if they continue to have easy access to the U.S. market.

If tariffs in the U.S. on goods from Asia increase, the entire relationship breaks down. Production would (in time) shift either to other countries (presumably those favoured by a President Trump) or to the U.S. - both of which would hurt Asia.

Trump and China

"We can't continue to allow China to rape our country," Trump said in July. He's threatened to officially designate China as a currency manipulator as soon as he becomes president. A currency manipulator is a country that intentionally weakens its currency to make its exports cheaper and more competitive.

It also means the U.S. could impose duties on "artificially cheap" Chinese products. It could also end up causing a trade war between the world's two largest economies. That would mean more tariffs and quotas on each other's imports and exports - and affect other economies outside the U.S. and China.

Also, Trump has contended that China - which is not part of the TPP - will join the TPP through "the back door." In fact, China has in recent years made inroads into many ASEAN economies to be positioned to take advantage of the deal. So Trump is partly right on this.

Trump has also called for U.S.-China trade "reform". Trump views the trade relationship between the two countries as fundamentally out of balance, and he'd want to tilt that balance more in favour of the U.S. He thinks that China is taking American jobs, breaking the rules of international trade, stealing commercial secrets, and manipulating its currency to gain an economic advantage.

If he follows through on any of what he says he'd like to do, it would have a major impact on China's manufacturing industry - and on the entire economy. Since China is the engine driving Asian economic growth, this would be bad for the entire region.

Countries like Singapore and Hong Kong thrive as key cogs in the global trade machine. If trade between the U.S. and Asia slows, it will have a huge effect on both of these city-states.

There's a lot more to it

There's much more that could be said about global markets and economies with Trump as U.S. president. We've put together a report on what Donald Trump would mean for Asia. Please download your free copy by clicking here.

Please note: This article was first published in Truewealth Asian Investment Daily on 03 November, 2016.

Kim Iskyan is the founder of Singapore-based Truewealth Publishing. He has spent most of the past 25 years exploring and analyzing global markets. He has been a stock analyst and research director for a big emerging market investment bank, managed a hedge fund, and sold mutual funds to private bankers. He has advised Fortune 50 companies on political risk and helped build stock exchanges from scratch in countries that few people could find on a map. He has lived and worked in ten countries, from Spain to Russia to Sri Lanka to the United States.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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