Donald Trump’s presidency is certainly making waves across Asia’s key economies.
America’s 45th president has withdrawn from the 12-nation Trans-Pacific Partnership. This may benefit China and India, as they were previously excluded from the deal, but some members of the Association of Southeast Asian Nations (ASEAN) might not be so inclined to view this move favorably.
Trump also publicly stated throughout his election campaign a willingness to slap a 45% tariff on imported Chinese goods. Although the ability of the US to impose such a tariff and the advantages of doing so are questionable, now that he is in the Oval Office and CEO of the world’s largest economy, that campaign pledge has become an issue of major geopolitical importance. It is being watched very carefully.
And there is another important concern on the horizon: that of a weaker US dollar.
In recent weeks, Trump has been lambasting China and Japan for devaluing their currencies, branding these countries as “currency manipulators”. “They play the money market, they play the devaluation market, while we sit here like a bunch of dummies,” he told a group of pharmaceutical executives.
After these remarks, there was widespread international indignation. But in a statement at the time, I was quoted as saying: “Much of the indignation is naive and hypocritical. [While] it may not be fair [or] right, it can be sensibly assumed that currency manipulations do indeed take place around the world as central banks, quite rightly, look out for their jurisdictions’ best interest using all their tools that they have at their disposal, such as competitive devaluations. As such, the outcry seems somewhat naive. It is also perhaps naive to think that a Trump administration would not take this approach, given the previous rhetoric on this issue.”
While many commentators have gone into panic mode about a devalued dollar, I have a different view. I think it could be a positive.
There are three key reasons for this more optimistic approach.
First, a weaker dollar could boost demand in the United States, which would have a far-reaching beneficial impact on the US – and therefore global – economy.
Second, a devaluing greenback could encourage investment to remain within Asia.
And third, it could help push nations in Asia to abandon their obsession with weak exchange rates, which, I believe, would subsequently help them secure long-term, sustainable economic growth.
On this third point, while it is likely that a lower dollar would in the short term cause jitters, if it is the push needed to break the devaluation obsession – which appears to be a broad policy not only in powerhouses such as Japan and China, but also in smaller economies such as South Korea, Vietnam and Taiwan – it can be reasonably expected that it would also be a catalyst for jobs and growth through greater levels of private investment and from a wider base.