Market Views: How will Trump's policies affect Asia's markets?

Daniel Tan, portfolio manager
Grasshopper Asset Management

 

Tariffs, but perhaps in unexpected ways, would have the biggest impact on Asia. 

 

China’s trade surplus has persisted in the face of tariffs, reaching nearly $1 trillion in 2024, as Chinese companies tried to increase exports ahead of Trump’s inauguration on January 20. 

 

We expect acceleration in the restructuring of the global supply chain, with Asian countries like Vietnam, Indonesia, and Malaysia likely beneficiaries.

 

For example, we have seen Vietnam directly benefitting, because its exports to the US more than doubled since the 2018 trade war. 

 

We think the decoupling of the Chinese and US economies is also likely to accelerate, with potentially disastrous consequences, as China’s incentives to avoid conflict with the West could shape its policies towards Taiwan, South Korea, and the Philippines, for example. 

 

Daphne Tan, director of business development
CMC Markets Singapore

 

Trump’s policies appear likely to reshape US-Asia relations, particularly in areas such as trade, security and how countries in the region interact with China.

 

With the impending onset of tariffs being front and centre, including the question of whether it’ll be a gradual and measured rollout, the first pronounced impact could be on Asian companies affected by the tariffs as well as their performance in equity and indices.

 

Ripple effects such as how countries would react and counter and possible pressures on relations may only surface in the latter half of the year.

 

China looks set to bear the brunt, given that the proposed tariffs on imports from China are intended to be 60%.

 

From that, the foreseeable sector that could be largely impacted would be artificial intelligence (AI) chips and the manufacturing industry, many of which have supply chains tied to China.

 

Tom Fahey, co-director, macro strategies team
Loomis Sayles & Company

 

With a stronger mandate and Republicans in control of Congress, we expect Trump to take a more aggressive approach toward China, possibly moving quickly to impose new tariffs. 

 

Unlike his first term, where there was a lengthy investigation before tariffs were imposed, the groundwork has already been laid, and Trump may act within the first 100 days of his new term. This could involve tariffs on China and potentially other trade partners, escalating tensions.

 

During Trump’s first term, China agreed to import targets, mostly on agriculture products, to reduce tariff levels but didn’t meet those targets, which could lead to an even more confrontational stance this time around. 

 

The situation is further complicated by China’s shift from a property-driven economy to one with excess manufacturing capacity, which is being exported globally. This has already disrupted markets, such as the German auto industry, and could create similar challenges in Asia.

 

China’s trade surplus of almost $1 trillion acts as a drag on global growth because its demand for imports is very weak.

 

If China reduces that surplus to $500 billion by increasing imports by $500 billion, it would be a boon to global demand which would certainly benefit its major trade partners in Asia, the US and Europe.  

 

PCs and components; apparel and footwear; and communication electronics, including cellphones and other electronic components represent the largest bilateral US-China deficits by sector, totaling to $255 billion.

 

While we don’t know if these sectors will be impacted by tariffs, it is notable that they are the biggest sources of the US trade deficit with China. 

 

Gary Tan, portfolio manager for the intrinsic emerging markets equity team
Allspring Global Investments

 

While Trump’s biggest impact on Asia in the near term will come from the fluctuations in the dollar, we believe his biggest impact on Asia longer term will revolve around the advancement and adoption of AI in the region. 

 

Trump’s policies over the next four years will be crucial in determining whether Asia can continue to benefit in its current role as an “enabler” of AI advancement and effectively adopt AI to address their longer-term demographic challenges.

 

Unlike longstanding issues like global trade imbalances and tariffs, Trump’s policies on artificial intelligence remain less defined in his upcoming term as the tipping point in artificial intelligence came after his first term. 

 

We expect Trump to enact policies to extend America’s lead in AI and to reinforce the semiconductor hardware supply chain.

 

Consequently, in Asia, we expect countries that can collaborate with the US like Taiwan, South Korea, and India to be the key beneficiaries of these policies due to their expertise in technology hardware and software implementation.

 

Vasileios Gkionakis, senior economist & strategist
Aviva Investors

 

President Trump has signaled a willingness to disrupt the global trade landscape from day one, and the threat and use of tariffs will likely create considerable uncertainty through 2025. 

 

Beyond what the US administration decides to do, there will likely be some kind of response from countries that are impacted, in some cases conciliatory and in others, retaliatory. As such, we think trade policy will weigh on global growth.

 

Other nations’ likely tit-for-tat response to US tariffs could have potentially negative consequences for companies and consumers. 

 

Such a scenario would tend to favour companies focused on their domestic economy relative to those reliant on foreign markets and suppliers.

 

A Trump Presidency will likely benefit industrial companies with significant US manufacturing footprints, whilst penalising industrial companies that outsource from abroad. 

 

We assume that significant tariffs are imposed on China, but that they are more limited in other specific product areas. China’s exports and growth will be hurt, even if some can be rerouted or sold to other nations, while growth will decelerate further from the already weak starting point.

 

We expect a stronger dollar – especially against Asian currencies - at least in the first part of 2025 due to potential tariffs, weaker global growth and trade, and flight to safety.

 

A stronger dollar, particularly versus emerging market currencies, may cause difficulties to many central banks’ interest rate cutting momentum across 2025. That will slow growth, at least relative to a less severe baseline.

 

Mel Siew, portfolio manager, Asia public credit
Muzinich & Co. 

 

Ahead of the inauguration on January 20th there is a wide range of expectations for policies from the incoming Trump administration which should narrow once executive orders and policies are formally announced. 

 

Our expectation is that tariffs are likely to be on the more conservative side, simply because the US economy is in different shape compared to when Trump first entered office in 2017.

 

Unemployment is lower, inflation is higher and more importantly, price levels are also higher, debt to gross domestic product (GDP) is close to 100%, and markets are more expensive. 

 

Apart from tariffs, there may be some impact from disbursements related to the Inflation Reduction Act, notably in relation to electric vehicle battery producers.

 

This may have a short-term impact but we believe that Asian producers have built a substantial lead in this sector and will benefit from long-term growth trends, with Chinese producers likely to be substituted by Korean and Japanese producers. 

 

Kunjal Gala, head of global emerging markets
Federated Hermes

 

Trump’s proposed tax policies look favourable for the US tech sector as a lower tax burden should free up resources in many industries to spend on technology.

Rising tech expenditure is likely to benefit Taiwan and South Korea as both economies are integral to global tech supply chains as well as the Indian information technology service sector.