TOKYO -- Asia will find itself in a precarious position if Donald Trump wins the U.S. presidency, analysts at Japanese brokerage Nomura have warned.
"A Trump presidency would no doubt hurt Asia's GDP growth and could ultimately drive cost-push inflation, impart smaller trade surpluses and looser macroeconomic policies," lead author Rob Subbaraman says in a report titled "Trumping Asia." "The knee-jerk reaction to a Trump victory by Asia's financial markets would almost surely be to sell off as investors' price in a greater risk premium to U.S. policy uncertainty, protectionism and regional insecurity."
Subbaraman notes that not all Asian economies would be affected equally, should the Republican nominee pull off a victory this November. While South Korea and the Philippines "would be among Asia's most vulnerable in terms of both economic and geopolitical channels," India and Thailand "seem among the least exposed," and the impact on China would be "limited."
For South Korea, trade is the primary concern. The country's exports to the U.S. were equivalent to 5% of its gross domestic product in 2015, and its merchandise trade surplus with the U.S. averaged $21.6 billion annually from 2012 to 2015. Trump has criticized the free trade agreement between the two countries for stealing American jobs.
"While a renegotiation may not be feasible any time soon ... there is a risk that Mr. Trump could declare South Korea, in addition to China, a currency manipulator," the report says.
If South Korea was to pay for the U.S. military presence on its soil -- as Trump has suggested -- the added fiscal burden would hinder the economy, while "the withdrawal of U.S. forces would dramatically increase geopolitical risks."
"In Southeast Asia, we believe the Philippines' economy stands to lose the most if Mr. Trump wins the presidency," the analysts warn, going on to highlight the various ways the country could be affected.
"If U.S. immigration policies tighten, leading to fewer migrant workers, this could impact remittances inflows back to the Philippines. The U.S. is host to 34.5% of the total overseas Filipino population, and we estimate accounts for about 31% of total worker remittances. Mr. Trump's goal of bringing jobs back to the U.S. may also affect the increasingly important business process outsourcing sector."
As for China, the analysts see potential problems on the foreign exchange and trade fronts.
"Based on Mr. Trump's rhetoric during his campaign for [the] presidency, we would assign a high probability to him declaring China a currency manipulator and pursuing more aggressive trade policies."
On top of that, Trump could impose punitive tariffs on certain items from China, such as textiles, chemical products and steel, and potentially higher value-added products as well.
Nevertheless, the authors add, "we believe the impact should be limited, as China and the U.S. have more common interests than conflicts in the region."
"Furthermore, China is relying more on domestic demand and less on external demand ... which makes it less vulnerable to foreign shocks."
Turning to India, the authors reckon there would be risks as well as possible benefits.
"Under Mr. Trump, a rise in protectionism reflected via curbs on legal immigration would undoubtedly hurt Indian IT companies and reduce remittances," the report says.
But the outlook is not all doom and gloom: "Higher tariffs on Chinese imports could also present Indian exporters with an opportunity, while his foreign policies, particularly with respect to Pakistan, suggest closer foreign ties. Thus, we view the overall impact on India as a mixed bag."
(All charts courtesy of Nomura)