Clinton vs Trump: Their impact on Asia

Hillary Clinton and Donald Trump’s race for the White House is entering its final phase.

And Asia is watching carefully because the policies and approaches of whoever wins the key to the Oval Office will have important repercussions, namely in terms of trade and geopolitics.

As one of the most powerful people on Earth, the next US president will have a pivotal role in how Asia’s future develops and is managed. This is perhaps especially true considering the influence their decisions and stances have over global capital markets; considering that China’s economy is predicted to be larger than America’s in the 2020s; and because other parts of Asia, including India, South Korea and Indonesia, are likely to be key drivers for global economic growth in the next decade.

So, how will the two candidates ‘take on’ Asia?

Trade

In order to benefit from Asia’s enormous growth potential, President Obama negotiated the Trans-Pacific Partnership (TPP) agreement in order to promote wider free trade.

But this landmark deal is now likely to be watered down at best, or even scrapped, by whoever wins the presidency. This will be frustrating, to say the least, for countries like Japan and the ASEAN nations who signed up.

In winning the Democrat nomination, Clinton had to be seen to be skeptical of trade deals — including the TPP, which she helped introduce. Similarly, the Republican Party has, arguably, been becoming increasingly anti-free trade since the Tea Party began putting pressure on Congressmen. It is a wave of sentiment that Trump has been only too happy to ride.

Yet any trade regime that encourages the rule of law and standardized ways of doing business would benefit regional growth, and make it harder for certain countries to bully the region through trade deals and gain political influence.

In addition, in an attempt to rebalance America’s trade deficit with Asia, Trump has said he would raise trade barriers against many of the region’s highly competitive producers, including double-digit tariffs on goods from China and Japan.

Currency tension should also be expected should the mufti — billionaire business mogul win. With him saying certain countries are ‘cheating’ due to their undervalued currencies, he is likely to tackle China’s foreign exchange reforms and take on the Bank of Japan which is keeping the yen down against the dollar.

Politics and geopolitics

Both U.S. presidential candidates are promising to be ‘tough on China.’ This can, arguably, simply be seen as political rhetoric. Nearly all candidates for decades have played this card in elections but once in power, no president can ignore the might of China’s economy and its international influence.

For Beijing, Clinton has proved to be something of an irritant, especially over the issues of human rights, internet freedoms and her belief that China’s power should be contained. She was also pivotal in the decision to have 60 % of the U.S. Navy fleet based in Asia by 2020.

With no record to judge, Trump, on the other hand, in terms of politics, remains more of a mystery to Beijing.

Vladimir Putin is known to favor a Trump victory, hence Russia’s alleged hacking and leaking of internal Democrat documents in the summer. Trump is seen as malleable, probably leading a chaotic presidency, which would give Russia opportunity to pursue reclaiming influence in its ‘near abroad’. China is likely to feel the same way, as it seeks greater control over the South China Sea and its Asian neighbors, but needs to be mindful of anti-China rhetoric from the Trump camp being turned into trade tariffs against it.

A Clinton victory would result in a more hawkish foreign policy, and more support for NATO, than from Trump (and from Obama). Some analysts suggest that Russia and China may attempt some land-grabbing over the next few months should Clinton win, on the view that it would be easier to do it in the dying days of Obama’s presidency than under a President Clinton.

On the issue of climate change, which is a major issue in the emerging economies of Asia, there are marked differences. Trump does not accept the scientific evidence of climate change. Clinton called it an “urgent threat.”

Stock Markets

Historically, Democrat presidencies have been better for the U.S. stock market than Republican ones, no one is quite sure why and I suspect it is more chance than anything fundamental. Indeed, if you look at the market on a sector-by-sector basis we might expect to see a rally if Trump rather than Clinton wins the White House and Republicans control both houses of Congress. This is because Republicans have traditionally been against environmental legislation (good for energy stocks) and against regulations for Wall Street (good for banks). Meanwhile Obamacare threatens the pharma and medical insurance sectors, since it will push down prices, so a Republican victory will favor those sectors if it looks like they will dismantle it.

However, working against that logic is Trump himself. His unpredictability and hostility to global trade make him a liability and markets hate uncertainty. The Fed has hinted that it will delay raising interest rates if Trump wins in order to offer confidence to the market.

For this reason I think investors might be relieved if Clinton wins, and we will see a rally following the election. This may herald another leg in the bull market that began in March 2009, but the US business cycle is now so long in the tooth that I doubt it. I suspect that whoever wins, the US stock market is going to under-perform against many Asian countries’ indexes for a few years hence.