The Asian markets experience a tough time ever since President Trump was elected. The executive orders issued by Trump continues to increase political and economic risks. The central banks in the Asia-Pacific region are extremely concerned about the economic and trade policies of Donald Trump. Economic experts argue that the protectionist policies of Trump will affect the economy of the US as well.
The chief of New Zealand Central bank commented that imposing higher tariffs on Chinese and Mexican imports will increase the cost in the USA. This will result in inflation shock within the country. As a result, the Federal Reserve has to take action to enforce a tighter policy which has the potential to limit economic growth. The rising inflation will become a challenge for the Federal Reserve and only stricter policies will be introduced thereafter.
The Bank of Japan governor has also warned against the new policies of the Trump White House. He has urged the bank to seek powerful monetary easing, considering the global economic situation. The low inflation rate in Japan coupled with the US action against the economy can cause a major setback to the Japanese economy. The central bank of India is also worried about the uncertainty while it kept the interest rates steady.
When Donald Trump was elected as the next President of the United States, the stocks and dollar value enjoyed a high ride. Tax reforms, economic deregulation and fiscal stimulus enthralled the investors and it resulted in a boom in the stock prices. However, in just a few weeks after assuming the office, Trump has issued controversial executive orders threatening various trade policies. This has piqued investors and the optimism is already fading. Further, experts argue that the economic reforms promised by Trump will take a long time to become realistic.
Trump has already pulled USA out of the 12 nation Asia-Pacific trade. He has also proclaimed that new trade deals will be formed with other countries while imposing heavy tariffs on imports from certain countries. The protectionist policy has threatened the integrity of the Asian economies. Particularly, countries such as Malaysia, Thailand, Taiwan and Korea depend on trade and their economies could have a major setback.
While the Federal Reserve has not increased the interest rates in 2017, it is expected to do so as the unemployment rates fall down in America. Eurozone inflation has also approached the 2% mark. The US policies can increase inflation risks in various countries. Trump has also commented that Japan and Germany devalue currencies, posing a risk to the US economy. Federal Reserve has already announced that it has plans to increase interest rates three times in this year. This means that protectionist policies will slow down growth all over the world.
There is so much uncertainty in the US economic policies and the experts are concerned. However, the long-term effect of the US interest rates will become clear as the fiscal stimulus policies of the Trump White House becomes clear.