As the 2024 US election nears, the possibility of a “red wave” sweeping Donald Trump and his Republican party to victory has thrown Asia’s leaders and markets into an intense period of uncertainty and speculation. Until recently, US Vice President Kamala Harris and her Democratic ticket appeared to have a slight statistical edge in polls and betting markets.
However, with Republican odds now rising, Asian economies are weighing the repercussions of a potential Republican-controlled White House, Senate, and House of Representatives, and the economic tremors a second Trump administration could unleash in 2025.
Trump’s return to office would likely revive some of his signature economic tactics, chief among them aggressive tariffs that could destabilize Asia’s export-dependent economies. Trump has floated the possibility of an imposing 60% tariff on Chinese imports—a move that would have an outsized impact on China, Asia’s economic powerhouse, and by extension, its neighbors who depend on China’s robust trade ecosystem.
UBS Group estimates that a tariff of this magnitude could cut China’s growth by half, slashing as much as 2.5 percentage points from China’s GDP. China’s economy is already grappling with challenges, from lackluster retail spending to a slump in property investment. In the third quarter, China’s economy grew by just 4.6% year-on-year, making these additional trade pressures a serious threat to its growth trajectory.
UBS economist Wang Tao warns that the fallout could extend beyond China. Other countries might raise tariffs on Chinese goods in a retaliatory “arms race,” further constraining supply chains and trade flows. If such tit-for-tat trade curbs escalate, they could choke off recovery efforts in economies already struggling with sluggish demand and inflationary pressures.
Beyond China, other Asian economies face potential fallout from Trump’s trade policies. Trump’s tariff targets could extend to Mexican car imports and possibly hit Japanese, South Korean, and Indian car manufacturers, putting Southeast Asia’s export-oriented economies at risk. Thailand, which has long aspired to be a “Detroit of Asia” by positioning itself as a key China alternative for global automakers, could see its plans stalled if Trump’s tariffs restrict auto exports to the US.
Neil Shearing, chief economist at Capital Economics, notes that the risk of a “universal tariff on all imports to the US” is creating fresh anxieties. A move of this nature would complicate trading relationships across Asia and further disincentivize businesses from investing in American markets. For Thailand and neighboring export-dependent economies, the direct impact of such tariffs could devastate industries that rely heavily on the US as a primary export destination.
Beyond trade wars, Asian policymakers are preparing for other potential ripple effects of Trump’s policy platform. Trump’s 2024 campaign has promised additional tax cuts, which could accelerate US growth in the short term but worsen the national debt, currently topping $35 trillion. This scenario would likely spur inflation, prompting the Federal Reserve to hike interest rates further. As Capital Economics predicts, Trump’s policies could elevate US inflation by two percentage points by mid-2026, with real GDP dipping by about 0.75% and the federal funds rate rising by an additional 50 basis points.
Such conditions could drive up global inflation, negatively impacting economies with high external debt or sensitive exchange rates, such as Turkey, Indonesia, and Brazil. These countries may have to curb monetary easing, despite needing more flexible monetary policy to foster growth. Asian emerging markets, already highly exposed to exchange rate fluctuations, are bracing for added volatility as the dollar strengthens under Trump’s influence.
Trump’s proposed tariffs on China could also destabilize asset markets and trigger volatility in emerging economies. Emre Peker, an analyst at Eurasia Group, warns that Trump’s proposed 60% tariffs on Chinese goods and a potential 10% tariff on US imports from other nations could amplify trade tensions between the EU and China. In Europe, industries from automotive to green energy already struggle against American and Chinese competitors. Trump’s tariffs could pressure Brussels to impose its own measures on Chinese goods to protect domestic industries, further complicating the international trade environment.
European and Asian markets are already displaying volatility in anticipation of Trump’s possible return, with US bond and equity markets also signaling caution. According to Emmanuel Cau, a strategist at Barclays, tariff concerns have already depressed EU equity markets, while emerging markets are grappling with risks tied to currency depreciation and outflows of capital.
Another potential effect of Trump’s return to power is the continued strengthening of the US dollar, which could put pressure on China’s exchange rate and, by extension, on the currencies of other Asian economies that trade heavily with the United States. Carie Li, a global strategist at DBS Bank, notes that “markets are closely watching the possibility of Trump’s policies reigniting a ‘Trump trade,’ which could drive the yuan’s value down to around 7.15 against the dollar.”
A weakening yuan could have destabilizing consequences for China and its trade partners in Asia, limiting their ability to compete globally and potentially spurring capital outflows. While some analysts argue that fears of the Trump trade are exaggerated, the impact on consumer prices could be significant if Trump’s proposed tariffs materialize.
The possibility of Trump’s re-election is also affecting high-risk asset markets, including cryptocurrencies. Gautam Chhugani, a Bernstein analyst, highlights that crypto bets are increasingly tied to election outcomes, noting, “If you are long on crypto here, you are likely taking a Trump trade.” A more volatile US market under Trump could amplify the appeal of decentralized assets like Bitcoin, as investors look to hedge against potential dollar depreciation and inflationary pressures.
A Trump presidency would bring numerous unpredictable elements to Asia. Trump’s first move as president in 2017 was to pull the US out of the Trans-Pacific Partnership (TPP), signaling a shift away from multilateralism that unsettled Asian leaders. Kamala Harris, in contrast, has actively participated in regional engagements like the Asia Pacific Economic Cooperation (APEC) summit, reinforcing the US’s Pacific identity.
Trump’s stance on the Federal Reserve adds another layer of uncertainty. During his first term, Trump pressured Fed Chairman Jerome Powell into rate cuts and even considered firing him. Trump’s recent comments suggesting that the president should have “at least a say” in Fed decisions have revived concerns that he could attempt to undermine the Fed’s independence, which could impact not only US inflation but also global capital flows.
Among the more controversial aspects of Trump’s policy history is his cavalier attitude toward debt. Trump hinted in 2016 at a willingness to renegotiate US debt in the event of an economic downturn, a stance that could destabilize bond markets and raise borrowing costs globally. In 2020, his administration reportedly discussed options to cancel debt held by China—a potential catastrophe for international credit markets, given the size of US liabilities.
In the current economic landscape, with US debt at nearly twice China’s GDP, any sign of default risk could trigger severe financial market consequences, especially for economies with high exposure to US debt and dollar-denominated liabilities.
