Asia's way of dealing with Trumponomics
It took Asia by surprise. Now the United States is entering the Trump era. It’s time for Asia to grasp what it means, to brace itself for what’s next, and to plan for adapting to the possible changes.
Already, the US dollar has been on a rapid rise against most currencies in the world – drawn by not only the prospects of a steady increase in interest rates, but more importantly President-elect Donald Trump’s promise of growth.
From Shanghai, Hong Kong, Singapore, New Delhi, and all other regional financial hubs, money is flowing to America in a ceaseless volume.
One key promise of Trumponomics is to develop infrastructure and revitalise manufacturing. Accordingly, prices of production materials, most importantly petroleum, which Asian countries usually depend on and import, are likely to be high.
This can be compared to a scenario that scares every family: The price of rice goes up right at a time when it is short of money – and when the wife is just about to give birth to a new baby – if people think about the government’s commitment to all the social programmes for a growing population.
Yes. As often is the case in the US, when gross domestic product picks up, its people make more money and buy more things, including cheaper imports from Asia. But instabilities abound in Europe, another major market for Asia. Throughout North America and Western Europe, many middle-class households would remain penny wise rather than generous, as once they were.
Building public infrastructure is a most reliable way for a country to involve more of its people and its cities in modern industries and services, and Asia will need heavy infrastructure investment for a long time to come. PHOTO: REUTERS
In the meantime, the Trump administration wouldn’t be happy if US companies leave all their manufacturing operations in Asia, despite the low prices the US consumers can enjoy. Some companies are reportedly already looking for ways to ship some jobs home.
No need to be a scaremonger. But Asians can tell the way the Americans do things. Whatever they do, they want to do it big and get quick results.
Think about Mr Trump’s job goal.
He wants to create as many as 25 million jobs, according to what he said in his campaign.
What does the figure mean?
It is nearly five times the manufacturing jobs that the US lost from 2000 to 2016, due allegedly to free trade and foreign competition.
Exactly how so many jobs will be created in America in such a short time is still not clear. But there can be no question as to what it means to this part of the world: No more jobs, or export orders, for Asia.
Mr Wilbur Ross, nominated as the next US commerce secretary, and Professor Peter Navarro, two economic advisers to the Trump campaign, already wrote in The Wall Street Journal in October, calling the North American Free Trade Agreement in 1993, China’s entry into the World Trade Organisation in 2001, and the free trade agreement with South Korea in 2012 the “three worst trade deals”.
They were the people who stood by Mr Trump when he announced that, on day one, the US is to withdraw from the Trans-Pacific Partnership or TPP.
The deal, which excludes China, and which the Chinese see as more of a political design than a commercial treaty, has never yielded any tangible benefit to Asia-Pacific anyway. There is little likelihood that it ever will, judging from the incoming US administration’s open dislike of it.
Continuing to hope for an act of mercy from Washington is perhaps a waste of time.
So, what to do? People in Asia must think about their options and make their own decisions while Trumponomics is unfolding. More specifically, what to do for Asia to sustain its thousands of small businesses?
What to do for Asia to create more opportunities, with more income, for its millions of families?
And what to do for Asia to ensure for itself a better chance to take advantage of at the next turn of events in the world economy once it comes?
At least, it’s time to think what they can do to at least avoid the kind of predicament Asia went through in the financial turmoil of the 1997-98 period, when currencies collapsed, jobs were lost and development stunted.
In times of an imminent change, there are only two things to do in general. One is to stay out of trouble. The other is to do the right thing to help oneself.
With perhaps the exception of Hong Kong, most Asian economies have long abandoned the attempt to peg their currency to the US dollar, a policy that once courted currency attacks.
A more fundamental thing to do at a likely troublesome time is to be more focused in financial commitment – be it a government, a business or a household.
It is to borrow less, to spend less, and to pledge less commitment.
Deleveraging, as it is called, is not a difficult task for corporate entities. For banks, it is to watch more closely the credit standing of clients and control non-performing loans. And for corporations, the common solutions include winding up unprofitable operations and trimming the spending budget.
Things would be different for a government, however.
In part, it’s because a government’s spending budget tends to carry huge social significance, which includes many public programmes and projects, which it should simply refuse to allow to be cut or attenuated.
That is essentially a challenge as to how Asian countries can keep generating a stream of revenue. A realistic alternative is to trade among themselves.
Asia’s regional trade relations have largely been amicable, even when countries are still negotiating for the Regional Comprehensive Economic Partnership, or RCEP, a free trade deal initiated by Asean, which Western media tend to describe as China’s game.
China has never shown an interest in competing with Asean to make rules for regional economic ties.
Admittedly, the size of Asia’s regional trade cannot compare with its trade with the US.
Yet it is stable, and can provide a sustainable source of income in a time of uncertainties.
However, if Mr Trump wants to protect the US from trading with Asia, he doesn’t need to be bothered by trade among Asians themselves.
Nor is the size of regional trade necessarily small. Every year, Thailand receives more than five million Chinese tourists, easily contributing to the country US$1 billion (S$1.42 billion) in business revenue.
In the long run, however, Asian countries will have to reduce their dependence on export revenue in order to become more resilient modern economies.
Building public infrastructure is a most reliable way for a country to involve more of its people and its cities in modern industries and services. Asia’s realities, its complex landscape for example, easily betray its need for heavy infrastructure investment over a long period to come.
The problem in this area, more often than not, is not a government’s excessive commitment, but inadequate funding, so much so that it cannot concentrate on even a small number of projects.
As capital of the entire world is being attracted by the rising dollar value and the prospects for investment returns from the US, it actually may be good timing for Asian governments to each embark on one or two development projects of this kind, so long as they can manage public funds in a more focused way.
In due time, there will be more changes.
Most importantly, globalisation is a global phenomenon. It’s like a marathon. The game doesn’t stop because one or two lead runners want to take a rest. All dogged efforts will pay off.
- This is a series of columns on global affairs written by top editors from members of the Asia News Network and published in newspapers across the region.