US elections on APAC investors
Implications for Asia of the US elections
Former president Donald Trump (2017-21) won the 5 November US presidential election, with Republicans also claiming a majority in the Senate. While the results of the House of Representatives races will likely take some more days to finalise, it is expected that the House will also have a Republican majority, giving Trump and the party full control, with few limits to the advancement of his agenda.
The issues for voters in this election ranged from jobs and inflation to reproductive rights and the state of democracy. However, the broad shift in the electorate towards Trump indicates that voters’ “lived experience” of inflation, costs of living and economic issues – regardless of positive economic statistics – was a primary reason for his win.
While Trump’s policy agenda was very light during his campaign (his “Agenda 47” came to just 16 pages), and further clarity is unlikely before his cabinet selections emerge, we do expect his focus to be on strengthening the US economy through deregulation (including in the energy and technology sectors) and lower taxes (including the extension of elements of his signature 2017 tax legislation which are set to expire in 2025, as well as further reductions to corporate taxes). He has indicated that tax cuts will be paid for through a sharp rise in tariffs, which are expected to feature prominently in his administration as a blunt policy tool to reduce bilateral trade deficits with other countries, particularly those in Asia. He has noted priority areas, in particular the boosting of US manufacturing and farming competitiveness.
US policy towards Asia under the incoming Trump administration will be one of the major drivers of business risk in the coming years, and the impacts will be both direct (trade policy, tariffs and sanctions), as well as indirect (knock-on effects of his domestic policies on the US economy, and impacts to countries and companies with global supply chains trying to comply with new, tighter rules).
What are the key areas to watch?
US-China relations:
Trump will take office in an era of broad and deepening bipartisan support in Washington for stronger competition and restrictions on China, particularly on technology controls. Some players in his new administration may want to see a stabilisation of ties with China, but given the blunt policies and adviser turnover in Trump’s first term, we can expect volatility, whether in the form of swift policy changes or the potential upending of global norms in trade and of economic and security alliances.
Trump has pledged to dramatically escalate the US-China trade war. While some of his comments during his campaign might be bluster to outline a hardline negotiation position in advance of engagement, the current trends of rising trade restrictions and strategic competition with China will indeed continue. We expect Trump 2.0 will make a move away from targeted policy approaches like the Biden administration’s “small yard, high fence” strategy, and toward blunter tools such as wide-ranging tariffs, sanctions and heavy-handed tactics to force third countries to limit trade with China.
The experience with Trump’s first administration prompted China to develop mechanisms to counter US sanctions and export and investment controls. These included an Unreliable Entity List (UEL), Export Control Law (ECL) and Anti-Foreign Sanctions Law (AFSL). While China has been building up its own economic resilience and retaliation options in recent years with such policies, as well as introducing additional export controls on critical minerals, it has not utilised these tools to full effect. (Beijing did use the UEL in 2024, but in a prudent, highly selective manner.) A major leadership meeting in July also endorsed the strengthening of China’s ability to counter foreign sanctions, undertake “long-arm jurisdiction”; build resilience plans for key industries and make supply chains “self-supporting and risk-controllable”.
If the US presses further with trade actions in 2025, Beijing is positioned to step up trade retaliation in response to US moves, and we may see Beijing wield its tools more frequently and forcefully – though still selectively. Should they do this, the interconnectedness of global supply chains means that the impact would not only be felt by the US, but also by third countries and companies across Asia and beyond. There will also be additional challenges to governments if trade and export control rules tighten, as they would face an increasingly difficult time in complying with conflicting demands from Beijing (to comply with its laws) as well as from the US or others (to enforce restrictions).
Broader Asia
More broadly, Trump favours bilateral negotiations over multilateral forums, and Trump 2.0 will be much less restrained by traditional hawks and internationalists. Participation in institutions, alliances and trade partnerships will be more conditional at best (for instance, the WTO) and ignored or withdrawn from at worst (for instance, the Indo-Pacific Economic Framework, which Trump has said he would reject). Many of his policy positions are expected to be based on the strength of his personal relationships with leaders of other countries, opening up potentially novel avenues of engagement but also increasing the risk of blowback for any leader who does not complement his transactional approach.
Trump is strongly focused on the idea of reducing the US trade deficit with all countries, not just China, seeing trade as a zero-sum game. And he is likely to pursue economic goals with much less regard for any impact on strategic ties. This could bring to bear some significant impacts for South-East Asian countries which, under prior US administrations, were regarded as key security allies in the region.
Trump’s vow to kill the IPEF is well known, and in the absence of any new trade-related proposals, the trade relationship between the US and South-East Asian countries is not likely to improve significantly.
Given the increase in Chinese companies offshoring export-focused production to South-East Asia, Trump 2.0 may start to target South-East Asian countries for trade-related violations. Countries with which the US has large trade deficits – such as Vietnam, Thailand and Malaysia – may face primary or secondary sanctions. Vietnam, in particular, is watching for stricter moves aimed at not only balancing Vietnam’s large trade surplus with the US, but also combating transshipments of China-made goods through its market (which were areas of scrutiny even during the Biden administration).
India will be a key bilateral partner to watch. Following the election results, Indian Prime Minister Narendra Modi said on social media that he looked forward to renewing his collaboration and friendship with Trump. However, India remains cautious about Trump’s policies towards tariffs and immigration.
In Japan, Prime Minister Ishiba Shigeru and his political rival Takaichi Sanae have both issued congratulations and highlighted strong US-Japan relations. Ahead of Japan’s upper house elections next year, there could be a change of prime minister, but whoever that is will prioritise building a personal relationship with Trump ‒ as exemplified on the golf course by late former prime minister Shinzo Abe (2006-07, 2012-20) during Trump’s first term. Japan has also stated they now expect the Nippon Steel acquisition of US Steel to take place by the end of the year.
While we will still need to wait for the scale of the Republican majorities in the Senate and House, the appointment to key Congressional roles and committees, and the naming of the Cabinet and top advisors before we can get a clearer picture of the Trump 2.0 policy road ahead, one thing is clear – compared with Trump’s first term in office, the world in 2024 has more flashpoints, more economic challenges, more interlinkages, and presents a greater risk of significant impact to the business operational environment if any leader – particularly the president of the United States – gets it wrong. In sum, the risk landscape has just gotten more unpredictable, right at a time when we have much less room for error.
Author: Control Risks