November 9th, 2016. 9525 miles from the White House, a small group of people gathered around a television screen at the ServisHero office in Kuala Lumpur to watch a Trump presidency unfold. It feels surreal to write this, but the general feeling is strikingly similar to when Britain voted Brexit a few months ago. The future seems bleak, with an air of uncertainty approximating much like the geopolitical tension perverse after the end of the Cold War. And a sense of bewilderment has evidently infected markets across the globe today, as we hopelessly watched more red patches fill up the map of the United States.
Knowing that Donald Trump, the real-estate tycoon turned reality TV star with no government or policy experience is suddenly the commander-in-chief of the world’s most powerful economy is definitely a legitimate basis for worry. You might be inclined to say that Southeast Asia has shown great resilience throughout 2016, during shocks such as Brexit and China’s surprise devaluation. But Krugman conceded in his NYT opinion piece earlier today that a ‘terrible thing’ has just happened, and that we are ‘probably looking at a global recession, with no end in sight’.
And the question on everyone’s mind is, ‘What does Trump America mean for me? For Malaysia? For Southeast Asia? Have policy makers and investors made up their minds about what a Trump presidency means for the region? As we watched an overly pleased Mr. Trump pledge to make America great again, it seems like they have, and I’m afraid to say it’s not good news.
The following write-up is a recollection of my own personal opinion. What I think Trump America means to Southeast Asia, particularly the Malaysian economy.
1. Plunging Financial Markets
To no one’s surprise, the dollar, as has been predicted over the past weeks, has taken a tumble. In just a matter of hours, the US dollar plummeted against developed currencies such as Yen and Sterling – this is bad news for the Ringgit and other currencies of trade-dependent economies. As traders speculate the outlook of decreased trade with America, policy makers might be forced to cut interest rates as a way to tackle the pervasive gloom blanketing the domestic economy.
2. Shocks to Malaysian Trade
The US accounts for about 10% of total Malaysian exports, and its share of Malaysia’s manufactured exports is up to 13%, greater than China’s share, which is shrinking. (Source: Nomura). The existing trade deals with the US has been key in supporting Malaysia’s economic resilience. Economic policy for Trump’s America is synonymous with protectionism. Added pressure in the form of tariffs can imply a huge setback for exports. In the short term, the uncertainty surrounding possible revisions on US trade practices can also cause a shock on National GDP.
3. Waving the Trans-Pacific Partnership Goodbye
If Trump could build a wall in the Pacific Ocean, he would. He has already pledged to withdraw from the Trans-Pacific Partnership (TPP) – a free-trade agreement covering 12 countries including Malaysia, which would account for 40% of the global economy. The proposed goal of the TPP was to create new jobs by opening foreign markets to global trade by eliminating taxes and create a fair regulatory environment, levelling the playing field in the global market. The collapse of this deal could have huge implications on the American circle of influence in Malaysia, and also scare off tourists and foreign investors at a time when exports are already struggling.
4. Adverse effects from China
Trump has declared China to be a currency manipulator on more than one occasion. Over the course of his campaign, he has threatened to impose a 45% tariff on Chinese good. If he does follow through, rising trade barriers could force Chinese lawmakers to weaken the Yuan. An act that could trigger a trade war with Malaysia and other neighbouring Asian countries who compete on low manufacturing cost.
5. Trumponomics hinders Long-term Growth
In its simplest form, Trumponomics – cutting tax rates, deregulation and protectionism would stimulate the economy. However, in the long term it is hard to find any examples of positive outcome from such policies in the history of modern economics. Such a plan would actually reduce growth and lead to recession. A recession in the world’s most powerful economy would take much of the world along with it, constraining trade, investment and growth across the board.
While I am a few degrees away from falling off my chair come January 2017, I can’t help but feel helpless at what feels like an abyss of deeply challenging times for the world (economy). A victory for Donald Trump has been widely seen as destructive for Asian economies because of his protectionist rhetoric. But I think it’s time to dust off that overused aphorism about winning battles and lost wars, and start asking the question that really matters – How do we best prepare ourselves for what lies ahead?
Everyone has an interest in American politics, and for its economy to be healthy and strong. The abrupt shock may not be that substantial in reality, and currencies of course bounce around all the time. But there is a lesson to be learned, not just for Americans but also for those of us 9525 miles away. Mr. Trump will no doubt reimagine the tone, standards and expectations of the presidency, and mix it with his unwavering love for hyperbole. We have a responsibility now to figure out how we got muddled in the poll of improbability and to not recoil in our anxiety but join forces with all who wished devoutly to believe in America’s essential goodness and strength and battle for truth honourably.
Count it as one of the last accomplishments of a truly historic campaign: Trump is so frightening that in his aggrandising image of making America great again – he’d forgotten all about making America good again.