Asia Economics Analyst:The US election and its implications for Asian economies

Donald Trump won last week’s US presidential election and the Republican Partymaintained its majorities in the Senate and House of Representatives. From aneconomic policy perspective, a Trump administration will likely push for morestimulative fiscal policy (tax cuts as well as increased spending on infrastructureand defense), increased trade protection, and deregulation. But considerableuncertainty remains about the President-elect’s detailed policy priorities and whohe will select to implement his agenda.

Fiscal stimulus could provide a boost to US growth in late 2017 and 2018. Withthe starting point of a fairly small output gap, and the possibility of upside pricepressures from greater import barriers, this creates more upside risk to the USinflation outlook in coming years. Consequently, more Fed tightening is likely, inline with our US colleagues’ above-consensus forecast, though president-electTrump will also have the opportunity to influence monetary policymaking via theappointment of several Fed governors and the Chair (the latter in February 2018).

The Asian export outlook is currently caught between the potential benefit ofstronger US growth on the one hand, and a possible blow from higher tradebarriers should the president-elect follow through on his proposed trade agendato date. The impulse to regional interest rates clearly looks higher. The likelychange in the policy mix is in the short term probably most helpful for“lowflation” economies, mostly in North Asia, likely less favorable for China (dueto potential export restraints and/or pressure on capital outflows) and leastfavorable for those economies with significant dollar borrowing and/or weakercurrent account positions.