Year of the Rooster forecasts: How did we do?

In February last year, AsianInvestor asked and answered 10 questions about key potential developments for the Year of the Rooster, after consulting market experts.

Here we look back on our forecasts a year later, to assess how well we did during a generally benign year for financial markets. We began with a topic that many were worried about in early 2017:

Will Donald Trump spark a trade war with China?

Answer: No

At the end of January 2017, the world was still coming to grips with the idea of Donald Trump as the new president of the US.

As a candidate he had run an extraordinarily divisive campaign, opening it with attacks on immigrants from Mexico and demands to build a border wall, and supplementing this with claims that the US was losing out on trade across the world due to its terrible negotiators in free trade deals. 

This led to a sizeable level of concern that Trump would carry out some of his more controversial trade policies, such as tearing up free trade accords like the North American Free Trade Act or slapping big tariffs on China-produced products.

The latter was a particular concern to onlookers from Asia. Trump gained a lot of applause for railing against China's practices, and he was not the first president elected on the back of promises to label China a currency manipulator. 

Of course, the fear was that Trump would spark a mutually destructive trade war by aggressively clamping down on Chinese products entering the US. There had been talk of imposing a 10% tariff on the profits of Chinese goods sold in the US. And the Republican-dominated Congress mulled a more severe Border Adjusted Tax that could impose a 20% tariff on all imports. 

Flattery in Florida 

But even in early 2017 there was cautious optimism that Trump's bark was worse than his bite. We confidently claimed that Trump would ultimately not follow through on his rhetoric by beginning a trade war that would damage both nations.

Plus our feeling was that Beijing would be careful to avoid antagonising Trump, particuilarly in a year when it was due to hold its 19th Communist Party Congress, which would affirm President Xi Jinping's leadership and mark the midway point of his role as president. 

In the year since it is has been notable that while Trump has proven almost as ferocious as he claimed when it comes to immigration, in the field of trade he was far less aggressive as president than he had been as a candidate. 

This might in part be down to the wiles of Xi. China was quick to realise the temperament of the man now running the US government and it plied Trump with all the pomp and circumstance it could muster upon his visit to Beijing in November. This included literal red carpet treatment such as a full military honour guard, a private tour of the Forbidden City, and an opera performance. 

The trip to China came seven months after Xi had visited Trump at the 'Winter White House' — his Florida beachside golf resort Mar A Largo, where the two men appeared to get on famously. For Trump, personal connections are enormously important and Xi's efforts to build a rapport with the US president alleviated many onlookers' concerns.  

The result has been that, for the entire year after Trump was elected president, the US didn't place any tariffs down on Chinese goods. So AsianInvestor was right — at least for a year. 

Hardening stance

That benign US approach changed on January 22, 2018, when the Trump administration announced it was slapping tariffs of up to 30% on solar panel equipment made outside the US. It also placed a 20% tariff on the first 1.2 million washing machines imported in a year, rising to 50% for those coming in thereafter. Both policies heavily affect China, as well as Korea.

In addition, the US president told the audience of business and political leaders at the annual Davos Meeting that he would not accept "unfair" trade practices; a statement many took to be directed at China.

These moves suggest a hardening of the US's stance and have raised rumblings of retaliation. And there could be more to come. Reports have surfaced that the Trump administration could place tariffs on other products too, raising the spectre of a potential tit-for-tat series of trade conflicts, if not a full-on trade war.

China has not taken this sitting down. The New York Times reported on Monday that the nation was opening "an anti-dumping and anti-subsidy investigation into sorghum imports from the US." 

The danger is that both sides appear unwilling to compromise. Trump may well want some symbolic trade victories to satisfy his political base, while China, with the 19th Party Congress now out of the way, has fewer political concerns about playing a harder line and not appearing a victim to US policies.

The result could be that certain industries within both countries suffer and prices for certain products rise as they become more expensive. That is likely to hurt some companies and make investing into each nation trickier. 

Trump's zero-sum, nationalistic view of the world could yet have some unintended consequences.