Trump 2.0 Would Be a Shock for Asia
About the author: William Pesek is a longtime Asia opinion writer, based in Tokyo. He is a former columnist for Barron’s and Bloomberg and the author of Japanization: What the World Can Learn from Japan’s Lost Decades.
Ah, 2016 — the good old days when Donald Trump only wanted to tax Chinese imports 45%.
Now, with the former U.S. president telegraphing 60%-plus tariffs, it’s easy to see why Asia is in low-grade panic at the specter of a Trump 2.0 White House.
Look no further than Tokyo, as Japanese officials spit out ready-for-the-worst phrases that go viral in real time. Moshi-tora means “if Trump” returns; hobo-tora, or “pretty much Trump; maji-tora, or “seriously, it’s Trump;” and the dreaded kaku-tora, or “Trump confirmed.” (The phrases riff on the transliteration of Trump as “Torampu.”)
Japanese PTSD from Trump 1.0 remains acute. While China was the target of the most aggressive trade policies of Trump’s 2017-2021 presidency, export-driven Japan arguably sustained the most collateral damage. Ditto for Trump’s tariffs on steel and aluminum.
South Korea is nervous, too. Seoul officials so fear Trump will defeat Joe Biden in November that they are partnering with Tokyo. Bitter memories dating from Japan’s 1910 takeover can no longer match concern that Trump will make trade wars great again. They would return at a moment of maximum peril for President Yoon Suk-yeol’s economy.
Not that Biden has hosted a picnic for Asia’s biggest economy. His move on May 14 to quadruple to 100% the tariffs on Chinese-made electric vehicles, and to slap levies on advanced batteries, solar cells, steel, aluminum, and medical equipment, seem ploys to out-Trump the Donald.
Yet the threat Asia senses from Trump 2.0 is of a very different magnitude. China’s fragilities are growing less than six months before Americans go to the polls.
This isn’t a defense of Chinese leader Xi Jinping. The Xi era has been something of a lost decade for China’s development as a vibrant market-driven economy. Today’s China is less transparent than it was in 2012, when Xi took the helm. Its capital markets aren’t ready for prime time, giant state-owned enterprises still dominate, the currency isn’t fully convertible, and the property crisis is fueling deflation.
For Washington, the risk of a Chinese debt crisis is of the be-careful-what-you-wish-for variety. Thirty years on, Japan is still grappling with the fallout from its 1990s bad-loan crisis. Hitting China with supersized tariffs would compound its troubles. And if the world’s biggest trading nation enters an acute economic crisis, those problems will dwarf Washington’s current anxieties about Chinese strength.
The rest of Asia, of course, is on the frontlines of China risks. Hence concerns about Trump’s plans to remind China who’s boss, and about China’s own retaliatory moves.
A new round of “America First” policies could wreak havoc in Asia.
Along with his new tariffs, Trump plans to strip Beijing of “most favored nation” trade status. That could cause chaos for global supply chains, including surging costs of doing business.
Trump would almost certainly demand his next Treasury Department label China a currency “manipulator.” Japan could be at risk of a designation, too, considering the yen’s 9.7% drop this year is well ahead of declines in the yuan.
It seems a safe bet that Trump would cajole the Federal Reserve to slash rates immediately, perhaps sharply. In 2019, Chair Jerome Powell did the Fed’s credibility no favors by appearing to bow to Trump’s rate cut demands. At the time, Trump threatened to fire Powell for tightening credit.
The stakes are much higher today. Since Trump left office, the U.S. national debt topped $34 trillion and Washington lost a second AAA rating. When Fitch Ratings downgraded the U.S. last August, it cited the political polarization behind the Jan. 6, 2021 insurrection among the reasons.
None of these forces breeds confidence in the forces underpinning the globe’s reserve currency. Trump’s 1.0 team apparently considered a plan to devalue the dollar. Any attempt along those lines would go badly, fast.
The shockwaves would make the 2008 Lehman Brothers crisis seem quaint. The mere suggestion of devaluation might have Japan, China, and other top holders of U.S. Treasury securities moving to dump titanically large amounts of dollars, tanking world markets.
Asia also would see a bull market in security concerns in a second Trump term. Trump 1.0 tried to strong arm Japan, America’s best friend in Asia, into paying about $8 billion in annual fees to keep U.S. troops here. Trump has already said he expects to demand more from allies.
Tokyo and Seoul are also bracing for Trump’s next soirée with Kim Jong Un. Might Trump invite the North Korean tyrant to the White House? And once again look the other way as Pyongyang develops its nuclear capabilities in ways that imperil Tokyo and Seoul?
Perhaps the biggest worry is that Trump’s transactional nature might get the better of Washington’s top allies. In recent months, Japanese Prime Minister Fumio Kishida’s ruling Liberal Democratic Party has been angling for audiences with Trump to lobby against a potential “grand bargain” trade deal with China.
In a February appearance on Fox News, Trump said “I like President Xi a lot” and gushed that he’s a “smart, brilliant, everything perfect” leader. It doesn’t take a leap of the imagination to envision Trump pursuing a Group of Two pact at the expense of Japan, Korea, and other allies in Asia—even Taiwan.
Anyone who doubts these scenarios, unhinged as they sound, hasn’t been paying attention. Since the 1980s, businessman Trump has been scapegoating Asia for most of America’s problems. Back then, Japan was the economic boogeyman. Today it’s China. At least back in 2016, Asia didn’t live in daily fear of a rogue White House hellbent on economic revenge.
Trump 2.0 could be even scarier than that. And doesn’t Asia know it?
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