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INVESTMENT: President Trump Brings Mixed Bag for Chinese Investing Opportunities
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President Trump Brings Mixed Bag for Chinese Investing Opportunities

By Anthony Lawry

010President-elect Donald Trump's unforeseen win is likely to reflect unforeseen economic policies as there is little consensus on what a Trump presidency translates into. This is especially true in relation to China as he spent the majority of his campaign viciously targeting the Middle Kingdom for transgressions and what he viewed as unfair trade. At first, global markets were rocked from the uncertainty surrounding the shocking election result, but rebounded again. Yet whether or not Trump's policies will be conducive for more growth is to be determined and should be looked at with suspicion regardless of what he suggests. But how will President Trump's policies affect investments in China? Are the signs as bad as they seem? Should we believe the attacks he threw at China during the campaign?

Regardless of the unknown nature of exactly what macroeconomic policies Trump will pursue for the United States and the impact of those policies on foreign trade, a few points should be expected. First, the Trans-Pacific Partnership (TPP) is basically dead. President Obama had a slim chance of getting it passed in the lame duck session but now that is a moot point as Trump would undoubtedly reverse that within the first few days. This translates into countries within East and Southeast Asia to more readily align their economic interests with China in what will undoubtedly become a regional trading bloc centered around China's One Belt One Road (OBOR) initiative financed by Asian Infrastructure Bank as well as other Chinese policy banks. Even Filippino President Rodrigo Duterte after signaling a willingness to now work with Trump has walked back on these comments saying the realignment with China is still on. Although the full financial outcome of this regional realignment will not fully metastasize for years and maybe even decades, it will likely be very positive for China's OBOR initiative and overall Chinese growth in the long-term. However, the long-term consequences of a Trump presidency could be extremely negative.

Secondly, President Trump may likely be aggressively antagonistic towards trade with China. This is the result of nearly a year and a half of Trump singling out China for being what he called a currency manipulator. He may propose legislation officially declaring China as such and could even take China through a World Trade Organization arbitration process for this alleged manipulation. He has pledged to take steps towards these actions on the first day of his presidency which would at least include issuing a mandate declaring China a currency manipulator. While labeling China as such is relatively outdated, inaccurate and in practice meaningless, Trump has also threatened to slap a 40 percent tariff on all Chinese goods, a move which would undoubtedly be disastrous for US/Chinese trade and could spark a trade war between the two countries in which China would in turn reciprocally place tariffs on US goods entering China. The results would be incredibly destructive to the relative economic cooperation between US and Chinese financial and macroeconomic officials and would likely devolve into lower growth for both countries, thus creating a ripple effect around the world potentially snowballing into a global depression.

All in all, these results are incredibly uncertain and none may end up fully devolving as such negative outcomes that many within the chattering class have described. As Trump asserts, a strategy of uncertainty is a great way to gain an upper hand in politics. Unfortunately for investors looking to make smart moves to capitalize on Chinese growth, such uncertainty is not ideal. It is impossible to foresee 'black swan' events like the past election. There are causes for concern, but perhaps the most even handed approach would be to just wait and see what happens.

As for short and medium-term investing, it looks like the initial shock on markets from a Trump presidency has worn off. It appears as though he is tapping Jamie Diamond, head of JP Morgan, the largest bank in the US, to be his treasury secretary. This is a positive sign for Chinese banks as the US firm has been operating in the country for decades, resulting in Diamond having multiple close ties with Chinese officials. This will likely result in the continuation of joint-cooperation between US and Chinese financial institutions on, for example, if and when the US will raise interest rates. Although Diamond is one of the favorites, it could also be Goldman Sachs' Steven Mnuchin with little experience in Asia, but another Wall Street insider. The rest of Trump's economic team is chalked full of Wall Street insiders which is a good signal for the continuation of a close economic relationship between the two countries. That being said, it can't be ignored that one of Trump's economic advisor's during the campaign was Peter Navaro, director of "Death by China", an anti-trade film advocating downgrading of economic ties between the two countries. Nonetheless, Navaro's role in Trump's administration, like most of Trump's de facto policy platform, is yet to be seen.

There is much cause for concern over the events that have transpired over the past year and half with the US election, the lies that have been uttered on China by both sides and the degree to which anti-Chinese sentiment has risen in the United States. It is too early for any reasonable conclusions to be met on how damaging a Trump presidency will be to the current relationship, which is still under strain from economic, militaristic, and political issues. Regardless, the most immediate cause for concern are the issues surrounding Trump's claim that China is a currency manipulator and the threat of slapping tariffs on Chinese goods. Any signals pointing towards this development should be an immediate red flag to any investor regardless of time horizon in which maturity of initial investments are expected.

Overall, political instability in conjunction with dramatic policy shifts in the US have not been a major issue between the US and China since the rapprochement between Chairman Mao Ze Dong and President Nixon. Even then, despite the checks and balances of the US political system, presidents have a large degree of leeway when it comes to trade and a hostile Trump in the White House should not be underestimated.

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