The second Trump administration is expected to have profound implications for Asia. This includes a potential regional transformation based on closer alignment with either the US or China, according to Lombard Odier.

Asia will be a key focus for the upcoming Donald Trump administration. The President-elect has previously threatened to impose tariffs of 60 percent on Chinese goods and 10 percent on the rest of the region.

However, a note by Lombard Odier said that US fiscal and monetary policy moving forward could have an even bigger impact. A focus on border control, tax cuts and tariffs may raise inflationary pressures, leading to higher interest rates and bond yields. In fact, the bank raised its forecast for the Federal Reserve’s terminal rate to 4 percent after the election.

«As higher US rates migrate to Asia, local economies – already impacted by reduced export growth – will face a weaker growth outlook. The US dollar will play a crucial role in this transmission,» said Lombard Odier’s Asia chief investment officer John Woods, highlighting that a strong dollar would increase the cost of dollar-denominated imports and debt.

Economic, Investment Outlook

Although Woods expects Asian economies to maintain reasonable growth in 2025, he noted that it would be «difficult to imagine rising global demand for Asian risk assets before the President-elect’s likely transactional approach to tariffs yields more encouraging developments than his campaign pledges suggested».

Given this position, the bank recently decided to raise portfolio exposure to US equities to reflect US economic exceptionalism.

Taking Sides

Rather than economics or markets, Woods expects that the Trump administration will have the greatest effect on Asia in terms of a «deglobalizing effect on international relations».

«Asia largely orbits around China's economy and America's political influence, creating tensions that have historically been managed through pragmatism and flexibility. However, this balance is fraying,» Woods said.

«While many Asian nations have maintained a non-aligned stance between the US and China, the economic allure of China – especially through ambitious multi-regional infrastructure developments like the ‘Belt and Road’ initiative – makes neutrality increasingly challenging. This may lead to a realignment of positions, resulting in new spheres of influence.»