Asia has spent the last couple of months fretting about a “Trump tantrum” in world markets. But what if the U.S. president-elect does more to make this region great again than damage its prospects?
This most contrarian of views from Warren Allderige, chief executive office at Pacific Harbor Group, is worth considering as a uniquely uncertain year gets underway. The rationale: Donald Trump’s team lashing out at what it considers predatory practices, threatening trade wars, seeking to pull jobs back to the United States and generally turning inward is a wake-up call to a region that has grown dangerously complacent. Think of it as Trump-inspired economic Darwinism.
“I think there could be a ‘Trump Effect’ in Asia — people not wanting to be left behind,” Hong Kong-based Allderige tells me.
Trump’s Twitter feed could prove to be the ultimate shaming mechanism. Just ask China’s Xi Jinping, whose nation is, unenviably, the target of Trump’s 140-character bromides. On Monday, for example, Trump tweeted that “China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won’t help with North Korea. Nice!” That, says Allderige, may have many Asian leaders concluding “I don’t want it happening to me.”
This naming-and-shaming policy could easily backfire, of course. Not only could President Xi retaliate if Trump goes too far or follows through on 45 percent tariff threats, but China has proven quite adept at huddling with Asian leaders and offering an alternative to Washington. Look no further than the Beijing appeasement currents coursing through the Philippines, Malaysia and elsewhere.
Even staunch U.S. ally Singapore is wondering what gives as Trump kills a Trans-Pacific Partnership that America initiated in the first place. Prime Minister Lee Hsien Loong is looking around for other avenues of cooperation “to create opportunities for Singaporean companies and Singaporeans.” Among them is the 16-nation Regional Comprehensive Economic Partnership, which includes China and excludes the world’s biggest economy. Alienating the most dynamic region could crimp U.S. growth in the long run.
Risks abound, too, as Asia hitches its fortunes to an opaque, unbalanced and still developing economy. Three years ago, it was China’s strength and growing market share that kept leaders from Seoul to Jakarta awake at night. Now, China’s weaknesses frighten Asia. So do the ways Trump-driven trade chaos could upend Asia’s main growth engine.
Even so, Asia must look in the mirror as a messy 2017 beckons. This year marks the 20th anniversary of the Asian crisis that began with Thailand’s baht devaluation and spread like wildfire. Thailand, Indonesia and South Korea turned to the International Monetary Fund for multibillion-dollar bailouts in exchange for reforms and deregulation. When calm returned a few years later, though, governments shelved upgrades and clung to their export-led growth models.
Asia has come a long way since the darkest days of 1997. It strengthened banking systems, reduced cronyism, privatized state-owned enterprises and amassed arsenals of currency reserves to protect economies. But the extent to which the repair job was incomplete became clear in 2008, when the U.S. sent financial contagion Asia’s way. Capital fled the region, driving up bond yields, slamming equities and setting back gains in living standards.
This pattern repeated itself in 2013 as a Federal Reserve-driven taper tantrum shook world markets. The floor fell out from under Indonesian assets, India narrowly avoided being downgraded to junk and Japan’s hopes of defeating deflation were dashed anew.
To be sure, 1997 is unlikely to repeat itself, no matter what Trump does. While foreign-currency debt is rising, it’s nowhere near the problem it was 20 years ago. Exchange rates aren’t pegged and economies are considerably more transparent. The contrasts between then and now trump the similarities. But hubris has its costs. China’s explosive growth and ultralow rates in the U.S., Europe and Japan in recent years made generating output too easy for developing Asia.
Painful restructuring took a back seat to ribbon-cutting ceremonies for new factories and flashy skyscrapers, inking foreign direct investment deals and high-fiving over splashy initial public offerings. Financial centers Singapore and Hong Kong grew smug as bankers fled Wall Street for the hot markets of Asia. All the while, unproductive investments and the bubbles that follow returned.
Trump’s shock election yanked away the punch bowl, creating a bull market in uncertainty. It’s always possible Trump’s pledged infrastructure boom will propel commodity prices higher and boost demand for Asian goods. But it’s exposing the cracks in the growth narrative. If it catalyzes the region to raise its game and diversify growth engines — more jobs and income from services and innovation — the Trump Effect could help make Asia’s outlook great again. Tantrums aren’t always bad.
Based in Tokyo, William Pesek is executive editor of Barron’s Asia and writes on Asian economics. www.barronsasia.com
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