On 8th November 2016, Donald Trump was elected the 45th president of the United States on Tuesday.
As it was a major shock to the world on Trump’s win, most are concerned of its impact to global economy and what will it mean to most of us. There are still a lot of uncertainties, but one thing is for sure, Asia bore the brunt of Trump’s victory, with weakened Asian currencies, particularly the Ringgit and Korean Won.
Asian currencies would continue to remain volatile until we have greater clarity from the new U.S. administrative policies.
With Donald Trump as President, here’s what will happen to the world:
Emerging Markets (EM)
Sometime next year, or within the first 100 days of the Trump administration, renovation will be taking effect. According to CNBC, negative impact is that Trump’s policies would spur inflation and rate hikes by the Federal Reserve, creating a negative feedback look for EM assets and sell-off would continue.
Trump’s Tax Plan for Businesses
Corporate taxes are expected to reduce from 35% to 15% to spur more local companies to grow and reduce corporates from bringing their businesses to overseas. This may affect US foreign investment overseas and Asian countries may experience lower US investments and possibly loss of jobs, as Trump intends to increase US employment rate. This might also affect the local currencies negatively, particularly in Malaysia.
International companies based in US would see a 10% repatriation tax, which could trigger a huge inflow of funds into the U.S. Source : Forbes
Tariffs will be imposed on products of U.S. companies produced overseas in an effort to prevent U.S. plants from moving abroad, according to Wall Street Journal. However, while it may increase in U.S. employment rate, the cost of products would be more expensive than if it were to be manufactured in say, China (with the planned 45% tariff on imports from China), with low wages paid to workers and low production costs. Will the products be sold cheaper or more expensive in the local U.S. market than it is now, is yet to be seen. Ultimately, we may see U.S. companies closing their plants and moving over to the U.S., and this will be bad news to many Asian countries particularly.
The 45% tariff on imports could very well be a campaign rhetoric, as pointed out by Global Times, since the president can only impose up to 15% for 150 days on all imported goods and on condition that the country is in a state of emergency. So it is highly unlikely that such rates will be imposed, but hypothetically if it did, this will spark another trade war spat. According to Global Times, when import tariffs of tires were imposed at 35% on China in 2009, China imposed its own tariffs on U.S. car parts and chickens, resulting in both countries suffering loss and Obama administration stopped trade wars with China. Henceforth, if Trump continues with his policies, China could ultimately halt import products from U.S., and US products, including iPhone sales would suffer greatly in China.
It seems that the post-Trump effect favor to the US itself while many Asia countries suffer from its glory.
Trans Pacific Partnership (TPP)
Trump announced he will withdraw from the TPP, calling it a disaster on ABC News. While it is largely welcomed by Americans who believed that such deals would erode manufacturing jobs in the U.S. and other negative economic outcome, U.S. credibility in negotiating deals and treaties could be undermined.
Apart from this, it would certainly benefit China, since the TPP is all about projecting U.S. influence against China’s in the Asia-Pacific. China’s New Silk Road is deemed to go on smoothly with much anticipation.
Not forgetting TPP’s restrictive intellectual property laws, which many are fearful of, would let us heave a sigh of relief upon hearing such news, particularly the healthcare industry, about the increase in pharmaceutical products by foreign corporations. (Source: Citizen.org)
Such decision (US withdraw from TPP) will create negative impact to the cross countries partnership.