Asia in 2025: Watching an Unpredictable US
The Trump equation and its possible consequences
Every country in Asia has some concern about what the Trump administration will bring, whether to themselves or to the world in general. The most common denominator is clearly tariffs, given Trump’s threats and the fact that almost every country has a large trade surplus with the US, headed regionally by China, Japan, Vietnam, Korea, and India.
But given that Trump sees himself as a dealmaker, simple approaches such as across-the-board tariffs despite his threats are improbable. What would be up for bargaining would be trade access vis-à -vis some other item of Trump’s agenda, or his personal whim. Thus India, Bangladesh, and Vietnam might expect to get off lightly for strategic reasons.
Disruptions of the whole global trading system via arbitrary measures are of course a major danger to the general world economy. But in the short term, any significant unilateral reduction in the US deficit would be a reason for domestic stimulus. At present, almost every country in East Asia runs a large current account surplus. Indonesia has a small deficit but can well support a bigger one given its continuing infrastructure needs and low level of inflation.
As it is, countries have been piling up dollars for lack of anything else and driving the dollar to decades highs against the yen, euro, Philippine peso, and others despite the fact that the US current account deficit is over 4 percent of GDP, its government deficit at 6 percent, with both likely to increase given Trump’s already-stated plans for another tax cut, while the stock market is at historically extreme valuations.
The other side of the coin has been weak Asian currencies persuading many central banks – Japan being the exception – to be wary of interest rate cuts and most stock markets – India being the main exception – have been dull at best.
Even without Trump, the imbalances have been getting to the point where fortunes are reversed, possibly dramatically even if Trump's tax cuts keep US interest rates up. Trump may also seek to alleviate the trade deficit by engineering the decline of the dollar but that is difficult to achieve, and a very large movement would be needed to make a significant trade impact. However, a combination of an overdue US recession and lower interest rates would quickly push the dollar off its perch, a development that should be welcomed in most of Asia.
On the strategic front, Trump may want to appease Russia over Ukraine in an attempt to reduce Putin’s dependence on China but how far he can go with alienating Europe, which China prefers not to antagonize, is open to question. Russia anyway seems stuck with the aging Putin’s obsession with the (partial) loss of the Tsarist/Soviet empire. His need for troops from nuclear North Korea was a reminder of the unresolved issues not only of the Korean peninsula but also of the Russian Far East, much acquired by force from Manchu China in the 19th century. India might welcome a greater Russian presence as an antidote to China but Moscow has scant naval resources to deploy while it pursues Ukraine.
In Central Asia, Chinese influence continues to grow at Russian expense, though Turkey also has appeal for ethnic and economic reasons, and any regime change in Iran, should it finally occur, would probably see a rapid expansion of its regional role and acceptance of its limited ability to confront US-backed Israeli colonialism in Palestine through proxies in Yemen and Lebanon.
In eastern Asia, the situation has recently been complicated by the removal of the South Korean president and the likelihood that his eventual successor will be less closely aligned with the US and Japan, while Japan worries about US commitments and trade threats. The Biden administration successfully launched a new tripartite security partnership involving Japan and South Korea to strengthen the western position in the Eastern Pacific. South Korean President Yoon Suk Yeol and then Japanese Premier Fumio Kishida, who negotiated the agreement, are now gone, as is Biden. Given Trump’s stated affection for Kim Jong-un, and his overtures to Xi Jinping, the fate of that agreement is anyone’s guess.
Here, and to an even greater extent in maritime Southeast Asia, much will depend on China’s own positions. Backing off from its aggressive pursuit of dubious historical claims in the South China Sea would give less reason for states to welcome (albeit silently) the importance that the US has been attaching to these waters. The Philippines has scant choice, but China may well test US resolve to protect the Philippines early in Trump’s term.
Malaysia has cozied up to Beijing and keeps secret the many violations of its sovereignty and EEZ. Vietnam has been pacified for now by not being aggressive in its waters. So eyes will be on Indonesia’s Prabowo. He has been rushing around the world to tell everyone how important Indonesia is. He aims to be active in a variety of international groupings with disparate members. A strategy has yet to be seen in all this but ASEAN does not seem to be a focus so far as he looks for a bigger stage. At home, there will be a focus on how far he gets in dismantling reform-era developments such as regional elections, which have already begun, and taking lenient attitudes to big-ticket corruption.
As for ASEAN, with Malaysia in the chair and Prime Minister Anwar Ibrahim as prime minister and chairman, even more platitudes and empty promises can be expected than usual.
The year 2025 is relatively short on elections. The Philippines has mid-term congressional polls but Marcos, in a growing confrontation with the forces of former President Rodrigo Duterte and his daughter Sara, the vice president, still has till 2027. The country is less dependent on exports (or China) than any other so economically it may be a safe place to be for now – if not from a strategic perspective.
Singapore will have one sometime before November, a test for the new prime minister Lawrence Wong. Will he get given the benefit of the doubt and more time to prove himself? Or will discontent, perhaps over wealth gaps and elites living in grand housing impact voter sentiment, or feeling that he remains in the shadow of Senior Minister Lee Hsien Loong? Some opposition parties have come together but still are more a protest vote than offering a clear agenda.
It remains to be seen when Bangladesh gets to vote or how the revival of politics will develop in the aftermath of the years of de facto one-party rule under Sheikh Hasina. Malaysia’s politics will likely remain a messy stability with Anwar’s survival propped up by leniency for various influential politicians tainted by involvement in 1MDB or other scams. In Thailand, with Thaksin Shinawatra at the controls through his daughter Paetongtorn as prime minister working to make the economy a family affair after nearly two decades of military-caused stagnation and corruption, there are hopes for growth tempered by some of the world’s highest consumer debt.
This time last year one could look forward to a year of major elections – India, Indonesia, the US, etc. Now all face a year of uncertainties despite their relative electoral serenity.
Start with ASEAN: As pointless as this regional organization has been since its inception in the mid 1970s, one cannot and should not expect anything more than more pointless pontifications and false promises and more self-importance and grandeur. ASEAN, for all that matters, in terms of domestic and regional politics, political-economy and international relations, is as lame as they day it was born. By and large, like it or not, ASEAN adheres to US geopolitical manouverings than it does to China. It claims to be "neutral" but in fact it is not. Just as member states Singapore and the Philippines (and, oh, so-called Communist Vietnam). ASEAN states may have signed up to China's BRICS but that's only because this is to bootlick Emperor Xi Jinping to show ASEAN countenance to US influence whilst milking China investments and easing, so they hope, China's bully-boy antics in the South China Sea. ASEAN is, to put it starkly, weak as piss, even as Malaysia (what can be worse?) takes over the chairmanship.
On Trump's threats of imposing tariffs on its trading partners and their impact: it's still early days. Remember that Joe Biden has unsurprisingly and shamelessly continued with Trump's 2016-2020 populist tariffs, with the same goals in mind. Biden's blocking of Japan's steel merger with US Steel simply amplifies that point after the humiliating loss by the Kamala Harris/Joe Biden Democrats to Trump Republicans in the last election and the dominance of Congress by Trump Republicans. This may just bolster Trump to imposing more punitive tariffs on its competitors in Asia but this will be a case, in my view, another dumb Trump adventurism in global trade matters.
If Trump is for "free market" competition and trade liberalization, he would find ways (that Biden and Harris did not) to ensure the foundations for this competition on US soil were rife for US firms to be more efficient and therefore more competitive. They haven't and they're not, mostly because their production costs have been rising and this, inter alia, has been fueling US inflation. In many of his columns, Nobel economics prize winner Paul Krugman seriously tried to present a benign US inflation story when most US consumers were loudly complaining about [still] rising price inflation. This brings into question -- yet again -- how statisticians calculate their inflation rates.
Trump's tariffs, by any measure, won't reduce US inflation any more than they will improve US competitiveness when input prices are still climbing northward. If his 2016-2020 term proved anything at all, Trump will likely unleash a bad spell for the US economy, which might see US economy slow and US jobless rate rise. This won't mean the US Fed will cut its interest rate, when price inflation remains high. If US interest rate stays at its current rate, that's enough for business not to borrow to invest in their operations. There's another problem here: the strength of the US dollar, which continues to hammer US export competitiveness but imports cheaper, which simply delights US consumers. Most of these cheap imports are made in state-imposed sanctions to keep their labor markets cheap in wages to keep driving their exports. But at some point, probably halfway through Trump's second term, US demand for cheap Asian exports will see that worm turn in on itself; meaning Asia faces a potential region-wide downturn.
The likes of China might do more of a Japan of the 198s and shift more of its costlier production offshore. But as Japan found out, it didn't help Japanese producers and households much. Japan's economy is still lumbering along the bottom and its high-cost industries might well face hollowing out in the way the US faced in the 198os and 1990s. Frankly put, the US has lost its competitiveness mojo long ago, as has Japan, and now the same prospects face Chinese industries too. The picture is much more complicated that the space here allows for a broader enunciation of the problems China is facing, of course. But tariffs will only worsen the US economy and, and interdependent as the world economy has become -- even before so-called neoliberal globalization -- so will Asia's economies.
In fact, I'll hazard a guess here that those US firms operating in China and elsewhere in Asia won't return to US soil to remake US manufacturing and make America great again. They'll like stay put and to some extent watch what and how Chinese firms rejig their operations and move offshore before they, too do likewise. But don't get your hopes up if you think these nw or greater investment flows will see Asian economies grow. They will, in the short to medium term, but not in the long run. Costs will run up in domestic economies, inflation will rise, prompting interest rate increases, especially if real wages rise (if -- if -- productivity also increases).
So far all the data only points to FDI inflows and not because of any real economic reforms in Asian countries, such as those promised by Malaysia whose prime minister Anwar Ibrahim has, typically, balked. A lot of the economic calculations that have always been made in Asia (as in the US) strongly factor in domestic politics, just as it's doing in China, when Xi's subsidies and reforms have not shown any real results (nor would I be inclined to believe China's statistics).
How the China maneuverings will fare will depend also on the strength of the US dollar. But as Philip Bowring notes, one, it won't be easy to engineer this and, two, it'll come at a great cost to (a) US firms in the US and (b) all foreign firms operating outside the US including Asian firms since their trade (imports and exports) will still be denominated in the US dollars. And forget the silly, insane, naive idea of de-dollarization, because BRICs is nothing more than another ASEAN -- uselessly designed to propagate a false Asian nationalism in the same way as the falseness of the ideological Asian values that proved the latter to be just a political sham. So will Trump's tariffs.