The ascendance of Donald Trump to the U.S. throne leaves many people in Asia nonplussed. The election campaign saw him rail against China and Japan for stealing U.S. jobs and promise to declare China a currency manipulator on his first day in office, as well as slapping 45% tariffs on Chinese imports.
What's Trump going to do? That's anyone's guess. Despite his remarks on the campaign trail, the first foreign leader that he met in person after election was Japanese Prime Minister Shinzo Abe, who is going to be a key ally in Asia, acting as a counterweight to China's rising power in the region. Prior to the meeting, Trump's aides told Abe's aides that after the election "we don't have to take each word that Mr. Trump said publicly literally."
Trump has already been playing politics with his call to the Taiwanese president and his stance that "One China" is a policy that the United States should review. Rather than resulting in concessions from China, though, it could lead to open confrontation, according to CLSA equity strategist Chris Wood, since China sees the policy as "simply non-negotiable." Investors "should prepare for a roller-coaster ride" once the "quite extraordinary" event of Trump taking office occurs, Wood says.
Is Asia robbing the United States of jobs? Hardly. Let's not forget that Toyota has 136,000 employees within the United States, where it is the largest car producer. Japan does export twice as many goods to the United States as it imports, so it would be at risk of a retaliatory tariff war. But the figures are far from the heyday of the 1980s, and Japan's share of U.S. trade has shrunk.
That's in part because Japanese companies have moved factories to the United States. Japan employs 839,000 people in America, 13% of the hiring of all foreign firms. U.S. companies have hired just 340,000 in Japan, only 2.5% of the total.
China is the largest exporter to the United States, its $423 billion for the 11 months through last November accounting for 21% of the whole nation's total. The numbers are heavily skewed when you look at jobs: U.S. companies have 1.7 million workers in China, while Chinese companies employ only 38,000 in the United States.
But that doesn't just benefit China -- there are many U.S. companies that would go bust if they had to make their products in the United States, but that can survive by operating overseas, Nomura Richard Koo notes.
"This group includes not only traditional industries like textiles but also high-tech firms like Apple and Hewlett-Packard," Koo says. "If such companies were to manufacture all their products in the U.S., they would never be able to compete with Asian products on the basis of price."
If not China, in other words, it would be Vietnam, Bangladesh or Burma welcoming those manufacturing facilities with open arms. But Trump last June called China's accession to the World Trade Organization the "greatest jobs theft in history," and said he would push the U.S. Trade Representative to bring cases against China before the WTO and at home.
With 16 cases, the United States already has the most beefs against China at the WTO, the latest coming last Friday when it filed an enforcement action against China for dumping aluminum at artificially low prices. Expect that tally, then, to rise.
Chinese President Xi Jinping notably struck a completely different tone from Trump on trade when he made a keynote address to the World Economic Forum in Davos earlier this week. "Economic globalization has powered global growth and facilitated movement of goods and capital, advances in science, technology and civilization, and interactions among peoples," he told the audience.
Are the two leaders really opposed on trade? I doubt it. Trump is at heart a dealmaker, and I suspect he will talk tough on trade while brokering bilateral deals, even with the nations he has criticized the most. Certain goods might be targeted. But claims such as imposing a prospective 45% duty on Chinese goods are just hot air -- such policy changes would have to go through Congress, which would never approve them.
Trump's recent interview comments with The Wall Street Journal that the dollar is "too strong" would have a clear impact on Asia were his administration to deliberately weaken the currency.
But there are many points of dispute within Trump's administration. His opinion was contradicted by his proposed Treasury Secretary Steven Mnuchin, a former Goldman Sachs partner, during his confirmation hearing before a Senate committee.
"The U.S. currency has been the most attractive currency to be in for very long periods of time," Mnuchin said. "The long-term strength of the dollar, over long periods of time, is important."
Trump is undoubtedly comparing it in his mind to the Chinese yuan. But with China's foreign-currency reserves falling to "just" $3 trillion and the Chinese currency now a reserve currency with a floating peg, Beijing has been moving to prop up its currency if anything at all.
A market shock is possible amid the uncertainty, according to Laurence Boone, the head of the research and investment strategy at AXA Investment Managers. We "should expect tensions, primarily with China," she writes, with Mexico another potential target of restricted trade.
Koo believes Trump will initially turn to tariffs to protect U.S. industry, but will ultimately opt for a weaker dollar. He should choose his targets carefully to limit retaliation, though, or to "cause the situation to snowball out of control."
Trump may keep China onside by targeting industries in which the country already has a glut of supply. This would give Xi an excuse to reform the state-owned enterprises that operate in basic materials such as cement, steel and aluminum.
Trump will also be considering what to do about the rise in outbound investment from China, which is keen to see its companies diversify abroad, including in the United States. For instance, he will be reading through a 32-page report compiled by the Obama administration on semiconductor purchases by Chinese companies.
Certain technological breakthroughs should remain out of Chinese hands, it states, particularly concerning military-defense systems and security. But it's not clear that Trump will follow its other recommendations, including that Chinese buyouts of smaller chip companies should go ahead if their intellectual property is not controversial. There will likely be heightened scrutiny of such deals.