D-Day for global trade as Trump sworn in as 45th US president

D-Day for global trade as Trump sworn in as 45th US president

SINGAPORE - Today, Donald Trump will become the most powerful man in the world. In the next few months, exporters, financial markets and leaders around the world will find out whether his campaign threats will become reality, or not.

If it is any consolation, senior investment analysts are now saying that fears of protectionist policies from the US affecting Singapore and Asia might be overblown.

Tax cuts, deregulation and government spending plans are more likely to be set in motion in Mr Trump's first 100 days in the White House, they told The Business Times.

Their optimism stands at odds with the bluster Mr Trump has directed against companies, whether domestic or foreign, which choose to produce out of cheaper places such as Mexico.

The ease at which fears of a global trade war are shrugged off is also characteristic of the hope sweeping through financial markets ever since Mr Trump won the US election last November on an anti-trade, anti-elite platform.

Embracing a sunny outlook is Didier Duret, chief investment officer of ABN Amro Private Banking.

Even if multilateral trade agreements run aground, major Asian trading countries will reinforce their alliances with one another, he said.

"Asia takes up 30 per cent of world trade, it's a big share, and China and Japan represent a big portion. There's a semi-protected trade area in ASEAN," he said.

Mr Duret said that protectionist policies will only affect what he called "old trade", or trade in manufactured goods.

But a new form of trade centred around the digital economy has arisen in the last 10 years.

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"It's an invisible trade, less physical, it's about services, deep in the social life of individuals, less about goods . . . the social and technological dimension of trade may mitigate what we're seeing on the surface," he said.

The US President's first 100 days in office is closely watched because it represents a time when his influence is the strongest.

Mr Trump has named a number of executive actions regarding areas such as trade, energy and regulation that he will take on Day One of his presidency.

Notably, he plans to withdraw from the Trans-Pacific Partnership, a giant free trade deal that was expected to boost smaller Asian economies such as Vietnam.

China is a clear target of Mr Trump's anti-trade views. But Mo Ji, Amundi Asset Management's chief economist of Asia ex-Japan, said that China's dependence on trade has come down over the years.

This is seen in a declining share of its exports as a percentage of gross domestic product (GDP).

Tariffs "won't have as big an impact as markets have perceived, actually the impact on the US is much bigger", she said.

Even if Mr Trump wants to impose tariffs, the hope is that he will listen to more rational voices talking him out of it, said Amundi senior equity strategist Ibra Wane.

Economists have warned how US-imposed tariffs will push up costs, damage consumer interests and lead to inflation, possibly even tipping the US into a recession.

Johan Jooste, Bank of Singapore's chief investment officer, said that only trade policy can be changed relatively quickly by the US president.

He said that the administration might make its priorities very clear on a range of issues, and markets will assume whatever is mooted will be actively pursued as policy.

But changes in fiscal policy, such as tax changes and infrastructure spending, will take effect only much later. Mr Jooste expects Mr Trump to label China a "currency manipulator" early on, and aim some tariffs at US imports from China.

While a full-blown trade war is bad news for Asian markets and Singapore stocks, the direct impact of Mr Trump's actions might be limited, with some weakness in the Singapore dollar at the margin, he said.

The US dollar has weakened slightly since the beginning of the year after surging in the second half of last year.

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But Kit Juckes, French bank Societe Generale's global fixed income and currencies strategist, expects it to strengthen again during Mr Trump's first 100 days in office.

Mr Trump might announce tax cuts and long-term spending plans amid the backdrop of the strong US economy.

These announcements will coincide with jitters in Europe over French elections in April and May, Mr Juckes said.

In France, votes are likely to be fractured leading to no clear majority winner in the first round. Far-right leader Marine Le Pen, who advocates for France to leave the Eurozone, might win the first round, with consensus expecting her to be runner-up in the second round.

"I can't imagine we'll be anything other than nervous about how this plays out," he said.

Mr Juckes expects the trade-weighted US dollar to increase another 5 per cent from current levels.

The US dollar can strengthen to 120 against the Japanese yen in the first 100 days of Mr Trump in the White House, and strengthen to parity against the euro, he said.

Jason Daw, Societe Generale's head of emerging FX strategy, said the Singapore dollar might weaken to 1.48 or 1.50 against the US dollar.

"The growth picture is a lot more weaker in the last couple of years, inflation pressures aren't necessarily that strong, the housing market is still weakening, and there isn't really a big impetus for growth to be picking up a lot, unless the global cycle turns around pretty strongly," he said.

Mr Trump's first priority is the US budget, and a proposal can be expected in the coming weeks, said ABN Amro's Mr Duret.

At the moment, people are just thinking about known risks like trade, geopolitics, and an isolationist US President.

But Mr Duret thinks the unexpected risks are non-financial in nature.

"For me the fat tails are ... in digital warfare, cybercrime, world epidemics.

The financial sector has been under extremely strong scrutiny since the global financial crisis ... but risks will come anywhere from outside."


Read also: Ex-governor: US should look to Singapore on how to bring back jobs

This article was first published on Jan 20, 2017.
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