Donald Trump’s decision to join the US presidential race did not surprise many at first. The American businessman is known for his ambitions, driven by his success story as a real-estate magnate, as well as the popularity of the TV show “The Apprentice”.
From neutrality, within months he has divided the nation, because of his strategy to sow the seeds of despair just to bolster his claims to become the US president. Globally he has also stirred curiosity, in a negative way. Leaders of several countries are closely observing the election campaigns, just to know what they have to do if Trump does win the race.
Global interest in this election is growing. Last week, at a special luncheon talk by Thomas Jordan, chairman of Swiss National Bank, a member of the Swiss-Thai Chamber of Commerce asked what would happen if Trump becomes the US president?
Jordan choked slightly in his reply. He politely said that as a central banker, he could not say much. He just reckoned that the winner's responsibility is to make sure that “the openness remains intact”.
Also last week, I received researches on this issue from two houses – United Overseas Bank and Maybank.
UOB’s research was entitled “US Presidential Election 2016: What if US Gets Trump?” That’s a very eye-catching title and the content is even more interesting, with this opening: “The upcoming US presidential election could have potential impact on Asia and Asian financial markets, particularly in the areas of trade, currency, and geopolitics”.
The content offers a gloomy outlook for Asian economies, including Thailand.
While Hillary Clinton’s win assures the world of the continuation of the Obama administration’s policies, Trump’s emergence would change that.
Chief among Trump's campaign pledges are: Build a wall on the border with Mexico and make Mexico pay for it; renegotiate the trade agreement with Mexico, China and withdraw from the North American Free Trade Agreement and Trans-Pacific Partnership (TPP); and deploy US military appropriately in the East and South China seas with allies like Japan and South Korea meeting the full cost of security guarantees.
Trump may not be able to deliver on all his election promises due to the “checks and balances” in the US system, but he could deliver on, among others, trade reform to address deficits (by using executive orders) and on US military deployment (as the commander-in-chief), the bank said.
Countries with trade surpluses with the US could face risks, chiefly China, 20 per cent of whose exports go to the US market with a trade surplus exceeding US$300 billion in the past two years. In this regard, Vietnam, South Korea, Malaysia and Thailand will also be particularly vulnerable, as more than 10 per cent of exports are headed to the US. Stronger domestic currencies, and/or tariff/non-tariff barriers could emerge.
If anything puts pressure on the Chinese yuan to rise against the US dollar, it is possible that Asian currencies would move in tandem with the yuan, UOB said.
The bank noted that though Thailand’s trade diversification would shield it from a possible drop in exports to the US, the country would not be spared from the impacts of trade restrictions and protectionist agendas. As global trade contracts, export-oriented firms would postpone their investment owing to low capacity utilisation. “Consequently, it will be difficult to unleash a new investment cycle in Thailand and the economy would grow below its potential in the medium term.”
The Thai economy could also face greater volatility in the financial markets, as the baht could strengthen against the greenback. In this case, the baht may not weaken to Bt36.5 at the end of this year as expected by UOB.
Maybank’s research was more focused on the foreign-exchange market in the run-up to the November 8 election. The house expects the US Federal Reserve to factor in the political economy risk from the election, especially in view of Trump’s campaign, and decide to raise interest rates by 0.25 basis points in December.
Maybank noted that disruption to trade flow would have an impact on growth prospects for the EU region, which is scheduling elections from now until 2017 in several countries like Austria, the Netherlands, France and Germany.
Maybank noted that aside from domestic political risks, external challenges, particularly the US presidential election, could also impact the baht/dollar exchange rate. Uncertainty would spark capital outflows from emerging markets, including Thailand, while Brexit concerns could spark another round of risk-haven flows. This would only weaken the baht, and Maybank expects the currency to end the year at Bt37 per dollar before creeping slightly higher to 37.20 in the second quarter of 2017.
Whatever happens, it is clear that the Thai economy could face strong headwinds and one of that is Trump.
Noting that Trump now has a 50 per cent chance, UOB economist Jimmy Koh said in the research note: “While we hesitate to place a Trump presidency as the base-case scenario, we should also highlight this outcome should not be treated as an unlikely event.”