In this week’s letter, we explore the potential impacts of President-elect Trump’s recent electoral victory on Asia. One key implication is that Trump’s policies could limit the room for policy easing by Asian central banks, particularly if his policies prove inflationary and prompt the US Fed to enact a tighter-for-longer monetary policy. As a result, market expectations for yield differentials between the US and other Asian economies may turn less favourable for the latter, potentially putting downward pressure on Asian currencies.
Beyond this, the most significant effect of Trump’s win could be on trade. Proposed tariffs of up to 60% on US imports from China and up to 20% on imports from other countries create a substantial risk of trade disruption. These measures could provoke retaliatory actions from affected economies or, alternatively, lead to the US negotiating bilateral agreements to reduce the impact, as we saw during Trump’s first term.
Additionally, Trump’s trade policies might prompt a fundamental shift in business strategies, both in the US and abroad. Companies could reconsider their global supply chains, potentially accelerating reshoring or onshoring efforts, while investments in overseas operations could be discouraged. Finally, while Trump’s “drill, baby, drill” stance may be initially expected to lower energy prices, the overall impact on global oil prices may not be so straightforward. This is due to the role of other major producers, such as OPEC+, as well as the potential for renewed geopolitical tensions and changes in global demand dynamics.
Monetary policy The impact of the recent US election – resulting in President-elect Trump’s victory – is set to reverberate globally. Governments, businesses, and market observers alike are now likely scrambling to assess the potential policy implications. One key area of focus is the future direction of US monetary policy, which, in turn, may lead to reassessments of monetary policies across Asian economies. Specifically, the US Fed may not need to cut interest rates as aggressively as previously expected, thanks to the potentially reflationary effects of some of Trump’s proposed fiscal measures. This could result in a higher terminal rate for the Fed in its current easing cycle. Such a shift may, in turn, influence the policy paths of central banks in Asia. If yield differentials become a factor in their decision-making, these banks could face more limited room for easing should they need to adjust rates (see Chart 1). However, several Asian central banks have yet to begin easing cycles due to country-specific factors. These include high household indebtedness, persistent inflation, or simply the absence of a compelling reason to ease, as growth remains strong in some economies.