We at the moment are hours away from america electing its forty seventh president. All eyes are glued on whether or not former president and Republican candidate Donald Trump will make a return to the White Home. Standing in his method is present Democratic Vice President Kamala Harris. Whereas there are three extra candidates for the nation’s prime posts, they both belong to smaller events or are independents and subsequently unlikely to determine prominently within the ballot.

There have been many polls, surveys, and commentaries on who will emerge victorious on this battle. In spite of everything, the following commander-in-chief of the U.S. has the facility to impression the trajectory of the worldwide financial system, together with right here in Southeast Asia. With the world’s financial system stricken by uncertainty, volatility, excessive rates of interest, and wars on two fronts, there may be a lot at stake.

With Trump and Harris locked in a detailed battle, what does the end result of the U.S. election imply for Southeast Asia?

Between the 2, Trump might be the extra identified entity. Already in his first time period, which started eight years in the past, he sought to disassemble the multilateral buying and selling regime created by globalization. We’re nonetheless seeing the results and implications of his insurance policies on this regard. That is very true for his aggressive and combative stance in opposition to China and its alleged commerce practices. If the U.S. and China are at the moment on a trajectory of decoupling from one another’s economies then Trump definitely set these wheels in movement in his 4 years within the Oval workplace. Ought to he be elected into workplace this week, Trump will seemingly use his time period to grease these wheels on “America First” insurance policies.

Trump’s Tariff Plans

Already, Trump has threatened to impose a collection of excessive tariffs, or import taxes, on 60 p.c on all items from China and 20 p.c on items the U.S. imports from elsewhere. In September, he additionally threatened to hit Mexican-produced items with 100 p.c tariffs.

First, Southeast Asian international locations, most of that are export-oriented economies, face the danger of decrease exports to the U.S. on account of Trump’s 20 p.c tariff risk. That is important. This yr, the U.S. overtook China as Southeast Asia’s largest export market, and as a lot as 15 p.c of the area’s exports go to the U.S. Any substantive discount in these exports, because of the tariffs, might hit the area’s economies exhausting. After all, there may be each risk that Trump, if he’s elected, could select to not follow-up on his tariff plans. Nonetheless, his preoccupation with commerce deficits and correcting these imbalances are key to his promise to create extra American jobs. With the area sustaining a virtually $200 billion commerce surplus with the U.S., it will likely be a shock if Trump doesn’t take steps to scale back this deficit, particularly with Vietnam and Thailand, which run $105 billion and $41 billion commerce surpluses with the U.S., respectively. Malaysia and Indonesia additionally run massive bilateral surpluses.

Furthermore, Trump is prone to complement his excessive tariff construction with an additional dismantling of multilateral commerce agreements. Trump prefers bilateral offers over multilateral ones as they’re simpler in coping with commerce deficits with particular person international locations. He has already threatened to withdraw from the Biden administration’s Indo-Pacific Financial Framework (IPEF) as early as doable in his second time period and thus Southeast Asian economies is not going to get any reprieve from the prospects of excessive tariffs from the U.S.

His tariff plans might additionally show to be a double-whammy for Southeast Asia. On the one hand, some regional economies stand to profit from his strategic decoupling from China as they turn out to be a recipient of FDI from corporations seeking to diversify their manufacturing bases. On the identical time, this elevated scrutiny signifies that Southeast Asian economies which have massive Chinese language investments, notably in strategic sectors like manufacturing, digital infrastructure, and excessive tech, might be adversely impacted. Trump’s aggressive stance towards China might see him specializing in Chinese language corporations’ investments globally and never simply inside China. This might imply that Southeast Asian corporations or industries with massive Chinese language investments might come below comparable therapy as these from mainland China and face import restrictions. Washington could even prohibit the export of U.S. applied sciences to those delicate sectors and economies.

Such strikes might cripple or decelerate the expansion sectors in Southeast Asian economies and have an effect on the general growth of these regional economies seeking to transition to extra excessive value-added sectors, with Indonesia, Malaysia, Thailand, and Vietnam, to be among the many most affected by these insurance policies. As an illustration, Thailand has been transitioning its vehicle manufacturing market to provide extra electrical autos (EVs) with the assistance of huge investments and know-how switch from Chinese language EV producers. With Trump making it clear that he sees the American EV market as a strategic sector and one which should be protected, Thailand’s transfer might be hampered because of the massive Chinese language funding on this business.

Inflationary Pressures

Trump’s high-tariff atmosphere will enhance enterprise prices. As the worth of U.S. imports, together with from Southeast Asia, rise, this enhance can be handed on partly to producers right here, which can in flip be handed on to customers elsewhere. A part of this can be borne by importers within the U.S. and thus customers there.

Trump’s strict immigration insurance policies are prone to exacerbate excessive prices. He has threatened to limit and reverse the dependence on immigrant and international labor within the U.S., which might create a good labor market. This may enhance wages, enterprise prices and, inevitably, costs.

If Trump’s insurance policies have the undesired impact of protecting costs excessive, that will halt the slashing of rates of interest within the U.S. In September, the Federal Reserve within the U.S. aggressively reduce charges by a half share level and advised that it might do extra within the coming yr, because it noticed inflation moderating. This primary price reduce in 4 years was a lot motive to cheer, because it promised to fortify investments and consumption globally, together with on this area.

Nonetheless, the Fed could revise its resolution and preserve rates of interest at this degree at an extended interval, if not enhance them, if Trump’s insurance policies once more push prices up.

Would Harris Be Any Completely different?

There’s a common view {that a} Kamala Harris presidency could be a lot better for the worldwide financial system than Trump’s. I consider such a binary view lacks nuance.

In the present day, the difficulty of making and defending American jobs enjoys bipartisan assist within the U.S., as a response to the notion that China is taking away American jobs.

Whereas Trump will cope with this in a extra direct, confrontational method by way of tariffs and restrictions, Harris is probably going to make use of human rights, labor requirements, and environmental rules to cope with China. This can be gentler, and the lesser of two evils, so far as Southeast Asia is anxious, even when the area nonetheless comes below U.S. scrutiny below a Harris administration.

Though Harris has previously opposed commerce agreements such because the United States-Mexico-Canada Settlement and the Trans-Pacific Partnership, she is prone to proceed President Joe Biden’s strategy to increasing commerce with the area. What this implies for commerce agreements like IPEF is that whereas Harris would decide to protecting the commerce pillar alive and rising, she might demand stronger enforcement of environmental and labor requirements, which might make the negotiations for the settlement harder and sophisticated, particularly with these Southeast Asian international locations that fall in need of these requirements.

General, Harris’s strategy to commerce will nonetheless be internet optimistic. Although there may be little signal that she is going to push for any complete commerce agreements, she is much less centered on correcting commerce imbalances than Trump and, subsequently there may be each chance she might pursue focused sectoral or bilateral commerce offers in keeping with U.S.’s strategic priorities together with in inexperienced applied sciences and the digital financial system – notably AI and cybersecurity – which might facilitate the relocation of extra manufacturing out of China into Southeast Asia.

Alternatively, Harris performed a key function within the present Biden administration’s reshoring of U.S. industries by way of the CHIPS Act and Inflation Discount Act (IRA). Her continued concentrate on this strategy might see a reversal or discount of U.S. FDI into Southeast Asia, if corporations allocate these investments domestically as an alternative and shorten provide chains.

Whether or not Trump or Harris prevails on Tuesday, we’re prone to see an growing transfer to extra “America First” insurance policies that swimsuit Washington’s strategic wants. Whereas these could create some alternatives for Southeast Asian economies, the area could should brace itself for a extra difficult and transactional financial relationship with the U.S. over the following 4 years – and certain past.