Our Global Head of Fixed Income and Thematic Research Michael
Zezas and Chief Asia Economist Chetan Ahya discuss how the
upcoming US elections might impact economic policies in Asia.
----- Transcript -----
Michael Zezas: Welcome to Thoughts on the
Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed
Income and Thematic Research.
Chetan Ahya: And I'm Chetan Ahya, Morgan
Stanley's Chief Asia Economist.
Michael Zezas: Today, we'll talk about what
the US election means for Asia's economy.
It's Wednesday, October 9th at 10am in New York.
Chetan, we're less than a month now from the US election, and
when I think about what it means for Asia, perhaps the most
immediate and direct impact would be via tariffs.
Now, our colleagues have already addressed some of this on the
podcast, but I'm eager to hear your thoughts. And in the case of
a Trump win and a significant tariff increase on China, how big
of an impact do you think this policy would have on China's
economy, and what particular areas of the economy might be most
affected?
Chetan Ahya: Well, Mike, I think firstly
the tariff numbers being floated, i.e. that if it is 60 per cent,
it would mean an increase in tariff of about 35 percentage points
over an existing number, which is at 25 per cent. So, the amount
of tariffs that we're talking about this time are larger than
what we saw in 2018-19. And in terms of implications, of course,
it will depend upon exactly what is the magnitude of tariff that
is being imposed, but we definitely think there will be a
significant downside to China's growth; and we expect an increase
in deflationary pressures.
Just to give you a bit of perspective of what happened in
2018-19, tariff resulted into China's growth slowing by a full
percentage point from 6.9 per cent to 5.9 per cent; and at the
same time, we saw that there was downward pressure on China's
inflation dynamic. And the timing of tariffs this time does not
seem to be great. China is going through an existing challenge of
debt deflation loop. And we've seen that China's GDP deflator,
which is a broader measure of prices, has been in deflation
already for about seven quarters now. And so, in this context,
tariffs will further add to its deflationary pressures and make
that macro situation much more complicated.
Michael Zezas: Got it. And so, how do you
think China might respond if it becomes the target of higher
tariffs?
Chetan Ahya: So, we think China's policy
makers could take up three sets of measures to mitigate the
impact of tariffs.
Number one, there will be, of course, depreciation in its
exchange rate, which will be offsetting some part of the tariff
increase effect. And so, for example, the weighted average tariff
increase was about 18 percentage points during 2018-19, and the
RMB depreciation was about 11 per cent. So, there was a
significant offset of that tariff increase by currency
depreciation.
Number two, China could continue to take its effort to rewire
trade flows and supply chain. So, for example, in 2018-19, we've
seen a significant rewiring of exports from China to the US via
Vietnam and Mexico, and we think this time that could be expanded
to some more economies.
And number three, China also resorted to focusing on new markets,
i.e. some of the other emerging markets other than US. And at the
same time, they focused on introducing new export products; like
in the last cycle, they focused on solar panels, lithium
batteries, EVs, and old generation chips. So, in effect, they
will try to expand their market base from US into other emerging
markets. And at the same time, they will be focusing on new
products to ensure that their market share in global goods
exports is maintained.
So, Mike, we've been discussing the potential impact of a Trump
win. But how would a Harris White House shape trade policy,
vis-à-vis China and rest of Asia?
Michael Zezas: Yeah, I think a Harris White
House would represent a lot of continuity with the Biden White
House's approach toward Asia and China, specifically when it
comes to trade. That is to say, there's a lot of support for
continued use and expansion of non-tariff barriers – things like
export controls, and inbound and outbound investment
restrictions. And there's less interest in using higher tariffs
than what we already have as a tool.
So, you can expect that. And I think you could also expect there
to be kind of a broader reach out to develop economic
relationships with Pan Asia as a means of enabling some of the
transition that multinational companies would need to rewire
their supply chains.
But if we take as a given that that might be Harris's approach to
trade policy, Chetan, what's your outlook for Asia if she wins in
November?
Chetan Ahya: Well, if Harris wins, that
would eliminate the key risk to region's outlook in form of
significant tariff implementation. And in this case, we expect
status quo to our Asia forecast. And we would maintain our
constructive outlook for the large economies in the region. And
within the group, we think India and Japan are best positioned
from a structural standpoint. While China, we were concerned
about the debt deflation loop, but with the recent set of policy
measures, we think that the risks are now more balanced as far as
China macro-outlook is concerned.
Michael Zezas: Got it. Well, Chetan, thanks
for taking the time to talk. This is obviously a very important
topic as we get closer to the US election.
Chetan Ahya: Great speaking with you, Mike.
Michael Zezas: And as a reminder, if you
enjoy Thoughts on the Market, please take a moment to rate and
review us wherever you listen; and share Thoughts on the Market
with a friend or colleague today.
Kommentare (0)
Melde dich an, um einen Kommentar zu schreiben.