Not just for Chinese growth, but the entire Asia region, Donald Trump’s election as U.S. president poses significant new risks for the Chinese economy just when China’s economy seemed to be stabilizing,

The reason: the president-elect campaigned on a policy platform with protectionism at its center. Trump wants to label the world’s No. 2 economy a currency manipulator and slap punitive tariffs on Chinese goods.

Such a move would hurt Chinese exports. However, catching other Asian economies in the crossfire, it could also trigger a trade war if Beijing retaliates.

Among other worries is the potential failure of the Trans-Pacific Partnership, a planned major regional trade pact. Less investment and weaker growth would be the result of slower trade flows and rising uncertainty. Then there is the risk of capital repatriation back to the U.S. and major security concerns  and controls on movement of people.

“Profound changes in U.S. trade and security relations with the region are likely and probably negative,” economists at Morgan Stanley wrote in a note.

Economists at Goldman Sachs Inc. wrote in a note that accepting the hit to growth from weaker exports or respond in kind could be the unpleasant choice for policy makers in Beijing if China is targeted with trade barriers. China’s international reserves and draining money from a slowing economy would be pressurized by a weaker yuan which could trigger an acceleration in capital outflows.

“One possible measure would be to allow a somewhat faster weakening of the yuan, although from China’s perspective this or other trade measures could carry the risk of escalation,” the Goldman economists wrote.

Ranging from a possible rise in trade protectionism to threats to regional security if the U.S. cuts its military commitments in Asia, a long list of worries under a Trump presidency was flagged in an investor survey conducted in July by Nomura Holdings Inc.

The conclusion is clear: after Mexico, Asia is most at risk.

75 percent of the respondents predict he will impose tariffs on exports from China, South Korea and Japan and 77 percent of respondents expect the U.S. will brand China a currency manipulator under Trump, according to the survey conducted by Nomura. Only 37 percent think he will follow through with a pledge to build a wall along the Mexican border.

Nomura didn’t disclose how many respondents it surveyed.

Investors’ fears aren’t unwarranted. Many nations in Asia would be put at risk if trade barriers start rising as Asia is the world’s manufacturing hub and many nations are export-dependent.

According to Nomura, the knock-on effects on the rest of Asia would be substantial if trade restrictions are imposed on China as the nation was the U.S.’s biggest trading partner last year.

South Korea and the Philippines are the most vulnerable economies in Asia. Trump has vowed to force South Korea to meet the full cost of security guarantees provided by the U.S., which may add to fiscal woes there and has criticized a 2012 free-trade agreement with the country, saying it has destroyed almost 100,000 American jobs and hence South Korea faces a possible backlash from two sides, Nomura said.

Due to the possible immigration restrictions, the Philippines faces risks.

(Adapted from Bloomberg)

Categories: Economy & Finance, Geopolitics