KUALA LUMPUR: The 2024 US presidential election is expected to have significant implications for economies in the Asia-Pacific (Apac) region, said Moody's Analytics.
The Democrat-led Kamala Harris and Republican-led Donald Trump are proposing vastly different economic policies involving changes to the tax code, government spending, immigration and—crucially—trade.
The firm said the largest risk facing the Asia-Pacific region is that of an abrupt shift in US trade policy.
Exports drive much of the region's growth, and the US is the final destination for most of the goods produced by Asia-Pacific countries.
"A flat 10 per cent tariff, as assumed in the Republican Sweep scenario, threatens this growth by making imports into the US more expensive."
"This would reduce shipping volumes and hurt business confidence. Although Trump has threatened 60 per cent tariffs on Chinese imports, we assume he will refrain from this extreme measure due to fears of retaliation and the US's reliance on essential goods from China," it said in a note.
Meanwhile, Moody's Analytics projects that a Republican win would do the most damage to Asia Pacific economies.
The damage to GDP would be more pronounced in economies that are highly open to trade such as Singapore and Hong Kong, and those with significant export exposure to the US, including Vietnam.
However, the firm said not all economic damage is transmitted through trade.
Some damage stems from diminished confidence, which it models as a decline in growth expectations.
"Indeed, net exports of Apac economies and the US change little in the scenarios featuring a Republican win compared to the baseline scenario. "This is because an appreciating US dollar offsets the loss of export volumes that results from higher US tariffs," it said.
On the financial markets, Moody's Analytics expects the U.S. Federal Reserve to raise rates above the baseline in the short term to combat elevated inflation and then trim rates as the economic outlook dims.
It said despite efforts by Apac central banks to move in lock step with the Fed, the spread between long-term yields in the U.S. and the region would widen, and lead to a depreciation of Apac currencies. The firm said higher interest rates and a weaker economic outlook would pressure US equity prices in scenarios featuring a Republican win.
"Although a weaker economy would drag down corporate sales and earnings, lower corporate taxes would mitigate the decline," it said.
In addition, Moody's Analytics said given the correlation between global share prices, this would also affect Apac equity valuations.
Consequently, it said share prices in Asia and the Pacific would fall below the baseline in a Republican win scenario, even though depreciating currencies would ordinarily boost valuations.
"We project equities would perform best in the baseline scenario featuring a democratic victory and divided congress," it added. Ends