Moody’s Investors Service predicts an economic boost for India and other Asian countries with Donald Trump likely to take over the presidency following the most contested United States election in history, fueled by rising tensions between the US and China. The ratings agency said that new policies on trade and investments of Trump’s administration would reorient international flows of finance, opening up new avenues for India and other ASEAN nations as businesses scramble to minimize reliance on China.
1. Strategic Trade Shifts and Investment Flows Away from China Moody’s believes Trump’s return would imply further additions on the investment restriction imposed by the US on China’s strategic sectors, which may negatively affect the economy of China but be positive for India and Southeast Asia. As the report points out:
Tightening of investments in strategic sectors by the US might divert trade and investment flows further away from China, therefore hurting China’s economy and consequently reducing regional growth; however, this shift would benefit India and ASEAN countries.
This strategic realignment-against the backdrop of escalating tensions between the US and China-may make the economies of India and ASEAN attractive destinations for global corporations seeking to expand manufacturing capacity and begin to diversify supply chains away from China.
2. Expected Changes in Fiscal and Trade Policies
Moody’s anticipates that Trump’s economic policies would probably revive many of his predecessor’s priorities, such as tax cuts and increased emphasis on protectionism:
Tax Policy: President Trump recommended that the 2017 Tax Cuts and Jobs Act be continued in permanently status. This would lower corporate taxes and also an income tax relief. These might boost homegrown investment but are likely to expand the federal deficit.
Protectionism in Trade: President Trump’s protectionism stance may involve additional tariffs on Chinese goods and on trade barriers aimed at preferences for US-made goods. According to Moody’s, such measures will unduly affect global supply chains, particularly in the manufacturing, high technology, and retail sectors that dramatically depend on imports.
“Protections could disrupt global supply chains and even hurt sectors reliant on imported materials and goods, such as manufacturing, technology, and retail,” the report noted.
3. Environmental and Climate Policy Reversals Expected
A new Trump administration will dramatically alter US environmental policies, both at home and abroad:
Increased Fossil Fuel Production: Trump’s “American energy dominance” agenda would provide more support to fossil fuel production than clean energy, potentially weighing down on climate commitments on the US part.
Paris Agreement Impact: Moody’s evaluates that Trump may pull out of the Paris Agreement once again and undermine commitment to reach net-zero by 2050. The change would also result in less federal funding for renewable energy as well as for wind and solar development.
“The flip-flop would likely revive favoritism towards fossil fuel-based businesses, dwindling funds for renewable energy and green technologies, and weakened environmental protection policies such as those of the EPA in its efforts to curb emission in power and automotive industries,” Moody’s observes.
While the federal support to renewable energies may dwindle with a change of the kind, their growth in the market will be consistent owing to economic viability across different continents.
4. Possible Financial Deregulation in Banking
Moody’s would expect a Trump administration to be more lenient towards the financial sector. This would come in several ways, including the relaxing of requirements of small and midsized banks, reducing capital requirements and hence increasing economic activity.
Less stringent regulations may leave creditors more vulnerable and increase the risks of systemic vulnerability within the financial sector
5. Challenges of a Divided Congress
Ambitious as Trump’s economic and trade policies could be, a divided Congress could still throw legislative challenges his way. This could moderate the speed and scope of the policy promises that Trump has lavished on his agenda, but an executive order may still make it easier for what his administration can push forward of that agenda.
Conclusion
Moody’s outlook can be interpreted in such a way, while Trump’s presidency can pose several hurdles in global trade and environmental policy, it may unlock new economic opportunities for India and other ASEAN nations. When international firms search for alternatives in and around China, this may shift the landscape in trade and investment further into other parts of Asia, possibly opening up opportunities for countries to improve their rankings in the global supply chains.
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