Markets Should Remember Campaigns Aren’t Government

(Bloomberg Opinion) -- Barack Obama made a point of reminding his opponents that elections have consequences. But economic history suggests that some of the most consequential decisions have more to do with underlying trends, the necessities of office, and crisis response, than what’s shouted in a campaign. Asia will need to bear this in mind when assessing the latest election outcome.

Policymakers in the region will also need to look beyond initial reactions. Donald Trump’s victory on Tuesday isn’t the end of globalization. His first term wasn’t, despite the escalation of tensions with China. The President-elect’s complaints about an overmighty dollar, a feature of his first White House stint, also require a dose of salt. He didn’t devalue the greenback and, while it was weaker when he left office in January 2021, the retreat was due to deep interest-rate cuts from the Federal Reserve to alleviate Covid. Trump egged the Fed on in that stimulus, notwithstanding his sharp criticism of the central bank a few years earlier. Circumstances warranted it. 

Asian economic chiefs are prudent to be cautious; changes in control of the White House bring shifts in approach, style and personnel. Some trepidation is understandable: Speaking in parliament as US markets began to surge and assets in Asia sagged, Indonesia’s central banker expressed wariness about what the election suggested. Jakarta is ready to prop up the rupiah, and economists doubt how quickly additional local rate cuts will come. The Reserve Bank of India governor talked down imminent reductions after the rupee fell to a record low. Ultimately, domestic conditions should drive the path of borrowing costs. Inflation has come down around the world: Count on rates in most places being lower months from now, regardless of Trump. Gyrations in markets such as those that buffeted Asia on Tuesday are jarring, but they don’t have to be decisive.   

As with Trump’s first victory in 2016, there are worries about how much harm he will do to trade. He has threatened to impose 60% tariffs on goods from China, and smaller levies on products from elsewhere. Let’s wait and see what is implemented before we write a second obituary on the international system. There's certainly precedent for administrations, once faced with the compromises required in office, to retreat from some of their most august declarations. Many people look back on the 1990s as a golden era for globalization and ties between Washington and Beijing. Yet how many remember that candidate Bill Clinton was skeptical of the North American Free Trade Agreement and of engagement with China? Clinton went on to embrace Nafta and provide critical support for China’s entry into the World Trade Organization. This was the era when supply chains went into overdrive — and Beijing was more open to Western companies setting up shop. 

Trade accords were already losing their luster by the time Obama ran for office. He saw the rhetorical value of dissing Nafta and insisted that China was unfairly steering the yuan for commercial advantage. Obama kept Nafta and his Treasury department was loath to make a formal finding that China was a manipulator. As for his predecessor, George W. Bush, it took more than six years for the definitive exercise of his tenure. That was a vast expansion in the role of the state. The driver was the sub-prime collapse. The situation was so dire that the government ploughed cash into Wall Street firms, nationalized major parts of the housing industry and took the first steps toward rescuing Detroit. 

Trump fired off plenty of broadsides against Nafta, but settled for a renegotiation that kept the substance of the original pact. The imposition of tariffs during his first White House tour did mark a major new stage in skepticism toward trade with China. He’s pledged to do much more, but it would be wise to see what makes the light of day. On top of curbs on the sale and purchase of technology, something Joe Biden championed, tariffs of 60% would cripple trade between the two countries, according to Bloomberg Economics. That would cause huge disruption to the US economy. He’s also threatened levies of 20% on the rest of the world. It’s hard to imagine at least some watering down won’t occur. China ties were cooling before Trump took office in January 2017 and they have been frosty under the Biden administration. Whatever is undertaken in Trump II, there’s an argument for casting it as evolution rather than revolution. 

So, Asia, take a breath. Try to remember the great line attributed to former UK Prime Minister Harold Macmillan when asked about the biggest challenges for a leader: “Events, dear boy, events.” The coming four years won’t be boring. Nor should we panic.a