What Businesses in APAC Should Expect Under a Second Trump Administration: Opportunities, Challenges, and Takeaways

What Businesses in APAC Should Expect Under a Second Trump Administration: Opportunities, Challenges, and Takeaways

November 2024

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It’s now been a week since Donald Trump became the second presidential candidate in U.S. history to achieve two non-consecutive electoral victories. Political pundits and business leaders across the world have already spilled vats of ink on what this could mean for America’s security commitments, the ongoing crises in the Middle East, and that all important relationship with China – a subject we wrote about last week.

But what might a second Trump administration herald for America’s role in the wider Asia Pacific region, and the myriad commercial ties that depend on this complex patchwork of relations?

Spinning plates

From Japan to Australia, and everywhere in between, businesses in Asia Pacific are having to reinterpret their prospects under the incoming administration. From the costs of goods to labour, to free travel between regions, the next US administration’s priorities could change the way businesses operate. Asia’s leading economies will have to re-balance their long-standing strategic partnerships with the United States alongside their growing economic interdependence with China.

As the world’s two superpowers face off over trade and tariffs, many businesses in the region have found themselves increasingly hedging their positions between Beijing and Washington. Donald Trump’s conception of foreign policy and trade envisages a more symmetrical, transactional picture of the world, in which trade imbalances are righted and alliances put on a more equal footing.

As Trump prepares to return to the White House, America’s allies and rivals alike are bracing themselves for the new normal, which could bring opportunities and challenges in equal measure for businesses operating in Asia.

Here are some of the key themes for business leaders to bear in mind.

Trade and tariffs

America’s burgeoning trade deficit has bothered Donald Trump for decades. So, when the president-elect recently described ‘tariff’ as the “most beautiful word in the dictionary”, he was tapping into a long-standing protectionist sentiment that has since become dominant in the Republican Party.

The prospect of 60 percent tariffs on Chinese goods has sent ripples through the corridors of power in Beijing – not to mention the countless American businesses that depend on trade with China. But the Trump campaign has also pledged to levy blanket tariffs of 10 to 20 percent on all imported goods.

The first issue is the trade balance itself. Future tariffs are likely to hit hardest against economies that have the most dramatic surpluses with the U.S., many of which are in the Asia Pacific region. Aside from China, other exporting heavyweights like Vietnam, Japan, South Korea, and Malaysia regularly make the top ten list of countries contributing the most to America’s trade deficit. Businesses in these countries may well find themselves having to contend with much higher import tariffs in the coming years. For some, this could be an inflection point, prompting them to explore other markets besides the U.S.

In certain cases, the Trump tariffs may prove to be an opening gambit – a bargaining chip for further negotiations, where existing trade agreements are revisited for terms more favourable to the U.S. Asian governments should prepare for the prospect of rejoining their U.S. counterparts at the negotiating table, as South Korea was pressured to do in 2018.

Tariffs are likely to disproportionately impact sectors perceived to be sensitive or essential to U.S. strategic interests. It is no accident that Trump’s first tariffs in 2018 were on steel and aluminium imports – two of the industries most deeply associated with America’s traditional industrial heartland, hollowed out by decades of globalisation. Automobile imports may well be next on the chopping block. Vehicles, machinery, electronics, and plastics – some of America’s most substantial import categories – have long depended on the Asia Pacific. Yet these are also some of the industries that Trump’s protectionist plans will likely be designed to safeguard only at home.

While China policy looms large, even businesses that have actively tried to minimise their exposure to China may still be affected by the incoming administration’s tariff policies. American transnational behemoths like Apple have sought to ‘de-risk’ their global supply chains by relocating some of their China operations and investing significantly in countries like India and Vietnam – though this has contributed, in turn, to widening their trade surplus with the U.S. If the next chapter of Trump tariffs comes to disproportionately target Asia’s fastest rising economic stars, businesses may find themselves having to recalibrate their strategies and diversify even further afield, as ‘China Plus One’ may prove to be a loophole with a limited shelf life.

TAKEAWAY: Having a strong perspective on industry-level public affairs will be essential to influencing high-level conversations as new agreements are being negotiated. This will especially be true if key trade and economic personnel in the new administration reflect the president-elect’s own decision-making style, which has proven to be receptive to negotiation and compromise.

TAKEAWAY: With protectionism on the agenda and tariffs set to increase, businesses need to re-examine their global supply chains and make sure they are well positioned across multiple markets, rather than just relying on business from the U.S. and China.

A greater greenback

The economic risks of a Trump presidency do not begin and end with trade. Aside from tariffs, Trump’s economic platform rests on a programme of tax cuts and sweeping corporate deregulation that may well prove effective in stimulating domestic growth, igniting investor confidence, and bolstering the value of the dollar. Yet, coupled with high tariffs and a harder line on immigration, this mixture of policies looks set to exacerbate inflationary pressures on the U.S. economy, likely compelling the Federal Reserve to keep interest rates high.

The run-on effect of higher interest rates is a further strengthening of the U.S. dollar. As 40 percent of global trade is settled in U.S. dollars, this can have destabilising effects, especially for a country like Japan whose powerful industrial base depends on dollar-denominated, foreign-sourced productive inputs. For less fortunate emerging markets with outsized foreign currency debt obligations, a mighty dollar could be catastrophic.

As the global economy becomes more unstable, and high interest rates enhance the appeal of American sovereign bonds, an opportunity cost could emerge. Global investors may increasingly flock to U.S. Treasuries, eschewing other asset classes in emerging markets and leaving developing countries – including in the Asia Pacific – starved of much needed capital investment.

TAKEAWAY: Currency depreciation in East Asian markets is nothing new and has historically helped keep exports competitive. A powerful dollar could help offset some of the losses that mature export-oriented economies in the region may experience from Trump’s proposed tariffs. International investors should not be discounting Asian assets just yet, and price competitiveness may be an opportunity to court international investors.

TAKEAWAY: U.S. trade and fiscal policies will certainly be disruptive to commercial dynamics in the region, but may end up benefitting China – and even the EU – as major regional players continue to calibrate their trade relations. This realignment could open new commercial opportunities for Asian businesses in other markets, particularly the EU and Middle East.

Turning the page

On foreign policy and trade, Trump’s first administration has generally been commended – even by his detractors – for refocusing the conversation on where America’s strategic priorities should lie. But there is no doubt that the world has become a far less stable place in recent years. Many observers are preoccupied with whether Trump can solve the conflict in Ukraine or bring peace to the Middle East.

While it may be less volatile for now, there is no question that the Asia Pacific region has become the world’s economic and geopolitical centre of gravity in the 21st century. A second Trump administration is unlikely to herald a radical realignment of the status quo. America’s treaty commitments and multilateral relations in the region will almost certainly hold – albeit with a renewed emphasis on ‘burden sharing’, in which allies like Japan and South Korea may have to contribute more to defence costs, with the inevitable fiscal challenges this would bring.

Donald Trump’s return to the White House ushers in an uncertain chapter for both America’s allies and rivals in the APAC region, and for businesses of all kinds. His early appointments for cabinet posts point to a hawkish and protectionist policy as expected, but we will learn more in the coming weeks and months. Regardless, the political realm will continue to creep into business and trade. Events in Washington will now have a profound impact on the mood in boardrooms and trading floors in Beijing, Singapore, Tokyo, Kuala Lumpur, and across the Asia Pacific.

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