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Asian leaders congratulate Trump but trade, foreign policy fears remain

Asian head of states congratulated Donald Trump on winning the White House, but their positive messages masked the serious consequences the Republican's victory could have for Asia.

"The change in administration will generate more uncertainty than any in the past half century, possibly even longer," warned Bob Herrera-Lim, managing director of Teneo Intelligence.

Nov 9, 2016:  Hindu Sena activists celebrate in New Delhi after Donald Trump won the U.S. election
Arvind Yadav / Hindustan Times / Getty Images
Nov 9, 2016: Hindu Sena activists celebrate in New Delhi after Donald Trump won the U.S. election

"The reason lies not only in Trump's personality, but the campaign promises he made and the fact that many in his administration will likely be outsiders to established networks that are the bases for relationships between Asia and Washington."

By far, bilateral trade and foreign policy are the areas believed to be the most high-risk for U.S.-Asia ties, amid serious concerns that Washington will become more protectionist and conservative under Trump.

Here's a breakdown of how major Asian leader reacted, and the broad issues at stake for their respective nations.

China

"I place great importance on the China-U.S. relationship, and look forward to working with you to uphold the principles of non-conflict, non-confrontation, mutual respect and win-win cooperation," President Xi Jinping told Trump on the phone.

Naturally, Xi's message made no mention of the U.S. president-elect's aggressive anti-China rhetoric, in which Trump labelled China a currency manipulator and accused Beijing of "raping" Washington with unfair trade policies.

The mainland's manufacturing sector, which may be on the decline but still remains a major growth engine, is set for a hit if Trump attempts to increase trade barriers against the Chinese through punitive tariffs.

"The Trump presidency could also mean many tit-for-tat negotiations between the two sides. Trump's threats on currency and trade wars could mean Chinese officials will need to sit down and negotiate more with the U.S. on market access and intellectual property rights," Citi economists warned in a note.

Chinese investments in the U.S., already under pressure due to American national security concerns, are now likely to come under even greater scrutiny with Trump in power.

But on the bright side, "Beijing stands to benefit from Trump's isolationist foreign policy in Asia as it will give the mainland a chance to assert more influence on the region," said Guo Yu, head of Asia research at risk analysis firm Verisk Maplecroft. "Beijing would be happy to see a drawback of U.S. military activities in the South China Sea."

Japan and South Korea

For both nations, with volatile North Korea on their doorstep, defense is of the utmost priority and each leader's congratulatory message hinted at that.

Japanese Prime Minister Shinzo Abe told Trump on Wednesday that Tokyo and Washington were "unshakeable allies," adding that stability in Asia-Pacific was crucial to peace and prosperity in the U.S. Abe planned to meet Trump in New York on Nov. 17, Reuters reported on Thursday.

South Korea's President Park Geun-hye said she hoped Washington would continue to cooperate with her country to address pending issues, including North Korea.

"South Korea and Japan are particularly unsettled by Trump's advocacy for removing all U.S. troops from Asia and Europe if the host nations did not pay 100 percent of their costs," explained Bruce Klingner, senior research fellow for Northeast Asia at The Heritage Foundation.

Should Trump deliver on that threat, it could embolden Seoul to risk China's ire by deploying the THAAD ballistic missile defense system, Klingner continued. South Korea had agreed with Washington to host a U.S. anti-missile defense system, known the Terminal High Altitude Area Defense (THAAD), to counter North Korea, but Beijing and Moscow are against the idea, calling THAAD a regional security threat.

For now, Trump has said he will maintain firm security commitments to Seoul, according to Yonhap News.

Tokyo, meanwhile, would need to increase spending to compensate for reduced U.S. troops, warned Guo. But greater defense outlays—already at record levels—would expand Japan's chronic budget deficit and add to its already massive debt pile, he noted.

Philippines

Philippine President Rodrigo Duterte, dubbed "Asia's Donald Trump" for similarities that include a taste for politically incorrect commentary, seemed joyful at the Republican's victory.

"Long live [Trump]," Duterte said in a speech during a visit to Malaysia. He admitted his resemblances with Trump, saying "we both curse, even with trivial matters." But most importantly, following months of lashing out at Washington and threatening to cut defense deals, Duterte promised to stop quarreling with the world's largest economy "because Trump has won."

Still, Duterte may be a tad bit too optimistic.

"If U.S.-Philippines ties weren't in jeopardy before, they are now. Trump is likely to approach the military alliance with the Philippines in a similar way to Duterte; with skepticism," said Guo.

Moreover, economic risks are ahead.

"Trump's anti-outsourcing, more protectionist trade position threatens the future of the Philippines' thriving business process outsourcing (BPO) industry," Guo added.

India

Prime Minister Narendra Modi thanked Trump for the friendship shown towards New Delhi during his campaign, and said he looked forward to working with the U.S. billionaire to take India-U.S. ties to a new height.

Trump, who wished Indian-Americans a Happy Diwali in Hindi last month, has promised to boost intelligence sharing with New Delhi in the fight against terrorism—a key topic for Indians of Hindu faith who are worried about Muslim extremism and renewed tensions with Pakistan following the recent Kashmir crisis.

But India may suffer in other sectors, especially immigration and investment, with Trump in power.

"India's software exports could be impacted if immigration policy turns more restrictive considering that India remains the biggest user of H1B visas, about 70 percent of issuances," Citi analysts flagged. H1B visas are a U.S. visa class that allow the companies to employ foreign workers with college degrees for specialist jobs in sectors including tech and science.

"Secondly, investment flows to India could be impacted if multinational corporations choose to repatriate larger shares of their income, as suggested during the Trump campaign," Citi continued, referring to Trump's threatened crackdown on multinational tax offshoring.

U.S. investors directly contribute 6 percent of total foreign direct investment flows into India, Citi estimated.

Australia

"Americans understand that they have no stronger ally, no better friend, than Australia" Prime Minister Malcolm Turnbull said he told Trump on Wednesday.

Like the rest of Asia-Pacific, however, Australia is in danger from Trump's protectionist stance.

"Australia will be particularly vulnerable if Trump were to set off a global trade war," said Shane Oliver, AMP Capital's head of investment strategy and chief economist. For Canberra, exports make up 21 percent of gross domestic product, versus 13 percent for Washington, he noted.

Singapore

As the leader of one of Asia's richest economies, Prime Minister Lee Hsien Loong said Singapore would continue to work with the U.S.

But the negative potential impact on global trade under a Trump administration—at a time when Singapore exports are struggling—will be negative for the Southeast Asian nation, which is the ASEAN economy most leveraged to the global trade cycles, ANZ economist Weiwen Ng cautioned.

"Singapore—as a small open economy—is a price taker in the global economy," Ng said. "We will have to adapt to the new administration."

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