Many critics of Trump’s protectionist trade tariff strategy believe this approach is a hangover of 19th-century mercantilism – punishing foreign producers with aggressive tariffs in order to rebuild a domestic U.S. industrial base. Others see Trump tariffs as as a means to an end – the Art of Deal” – as an opening gambit in heady trade negotiations. Proponent believe that these tariff will be costless, and that domestic consumers will hardly notice them anyway, and even if tariffs increase U.S. consumer prices, it’s a price worth paying in order to “Make America Great Again”.
However, for many U.S. trading partners, this revival of Smoot-Hawley protectionism poses a list of economic risks in an interconnected world.
To be sure, Asia is on the frontlines of of this trade war. But it seems the largest risks are to the United States itself…
William Pesek writes for Asia Times…
As Asia braces for the great “Trump trade” adventure of 2025, the lessons from 2024 are fast piling up.
The biggest lesson is how terribly the inflation-is-transitory trade worked out for investors. And for voters and world leaders who don’t relish a Donald Trump 2.0 presidency.
The US inflation surge has many fathers — from post-Covid supply chain disruptions to excessively low interest rates to an explosion of over-the-top government stimulus. But Trump’s reelection is the mother-of-all side effects from fiscal and monetary policies run amok.
And Asia has the ultimate front-row seat for what’s to come as Trump retakes the reins with very big — and controversial — plans.
Most of the focus is on the Trump 2.0 trade war to come. But far more attention should be on the fireworks sure to come as Trump’s policy promises collide with a fiscal train wreck unfolding in slow motion.
On January 20, Trump will inherit a national debt exceeding US$36 trillion. And, depending on which pundit you follow, Trump is either about to explode the debt in wildly disruptive ways via massive tax cuts – or, given the giant scalpel Trump has handed Elon Musk, slash it aggressively.
Either outcome could pose huge risks for global markets.
Door No. 1 could see the US debt zooming toward US$40 trillion and credit rating companies pouncing. Washington could quickly lose its last AAA rating, from Moody’s Investors Service. Asia is directly on the frontlines of the chaos such a downgrade would unleash in bond, stock and currency markets everywhere.
Door No. 2 would see Trump’s Tesla billionaire benefactor trying to trim federal spending by firing government employees here and there. But unless Team Trump is willing to target the military and entitlements like Social Security, Medicare and Medicaid, Musk’s government efficiency unit won’t make a dent.
Far more success would be had focusing on deregulation and over-the-top subsidies on industries like those on which Musk’s private companies rely. It was a lack of investment in productivity-enhancing sectors and technologies that left the US so susceptible to inflation.
“With Trump and some likely appointees focused on reducing bilateral deficits,” says Andrew Tilton, an economist at Goldman Sachs, “there is a risk that — in a sort of ‘whack-a-mole’ manner — burgeoning bilateral deficits could eventually prompt US tariffs on other Asian economies.”
Tilton adds that “Korea, Taiwan and, especially, Vietnam have seen large trade gains versus the US,” something Trump 2.0 isn’t likely to let slide. As such, Asia’s top trading nations may try to narrow surpluses to “deflect” Team Trump’s attention away from them.
Barclays Bank economist Brian Tan adds that “trade policy is where Mr. Trump is likely to be most consequential for emerging Asia in his second term as US president,” inflicting “greater pain” on more open economies.
Suffice it to say, America’s debt excesses also will challenge — and most likely plague — the Trump 2.0 era in ways the president-elect doesn’t seem to realize…
Continue this analysis at Asia Times
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