Asia Breathing Easier as Forecasts of 'Day One' Doom Under Trump Fail

Newly inaugurated President Donald Trump failed to deliver on his campaign promise to slap new tariffs on China on Day One. As Trump eases into his third day of his second term in office, there’s been a small sigh of relief for investors in Asia, with Trump focusing almost exclusively on domestic issues as his early concerns.

Asian nations are right to prepare for the worst if trade ultimately gets disrupted under Trump 2.0. And indeed the president, in his inauguration speech, said the United States “will tariff and tax foreign countries to enrich our citizens.” But there has been little to perturb investors so far. Not least that the U.S. government can only tariff and tax its own citizens.

The only tariffs that Trump directly addressed is the potential for imposing 25% duties on imports from Canada and Mexico as of February 1. Via executive order, he also directed the U.S. Trade Representative’s office to start an investigation into the trade practices of those nations as well as China, and to assess whether China has complied with the “Phase 1” trade deal signed with Trump in 2020. Those reviews are due April 1.

China has not complied with it. It’s very clear. But the language used by the newly installed president suggests he’s using this review as a negotiating tactic to move on to “Phase 2.”

Perhaps surprisingly, there was only one mention of China in Trump’s inauguration speech. It didn’t involve tariffs, though it does involve trade.

“And above all, China is operating the Panama Canal,” Trump said, after complaining that American ships are being overcharged for using the waterway. “And we didn’t give it to China. We gave it to Panama, and we’re taking it back.”

Sitting here in Hong Kong, I’d point out that this is both an oversimplification, and untrue.

The nation of Panama owns the Panama Canal, operating the canal through a dedicated agency, the Panama Canal Authority, which sets the rates for using it. Ownership was permanently transferred in 1999 under two treaties inked in 1979 by then-president Jimmy Carter, and ratified by the U.S. Senate.

The Hong Kong company CK Hutchison does manage the ports in Cristóbal and Balboa, two of the five cargo-terminal operations serving the canal. CK Hutchison CKHUY (HK:0001), the world’s biggest port operator, is a listed conglomerate controlled by Hong Kong’s richest man, Li Ka-shing, and his family.

The Chinese government has no control or ownership over “Hutch” – in fact, the mainland media have frequently questioned Li’s loyalty to mainland China, and have criticized him both for cutting back on China exposure and supposed pro-democracy leanings.

There’s a longer piece looking at potential Chinese influence over the canal here. Hong Kong is a separate legal jurisdiction from China, especially in terms of corporate law, and Hutchison’s ports-management subsidiary also controls ports in Mexico, next to San Diego, for instance, as well as in Amsterdam, London, Brisbane and Sydney.

CK Hutchison does have operations in China, as well as partnerships with Chinese businesses, including state-owned enterprises. So there’s always the prospect that the Beijing government could attempt to pressure Li into doing its bidding. However, given the frosty relations between the Chinese Communist Party in mainland China and Hong Kong’s tycoon class, Li has so far toed the line of doing just enough to maintain its mainland business while divesting and investing overseas.

Chinese President Xi Jinping has demonstrated a disdain for and distrust of private businesses. So just as Xi could attempt to bend Li to do China’s bidding, the Chinese leadership will likely have far more success leaning on the likes of Tesla TSLA CEO Elon Musk.

China is the second-largest market for Tesla, where sales climbed 8.8% in 2024 to 657,000 cars, or 36.7% of worldwide sales. That’s even as worldwide Tesla sales dipped 1.1%. Shanghai is also Tesla’s most-productive site, using the factory to ship elsewhere in Asia and also into markets such as the European Union.

Musk is likely to be a key player in the relationship between China and the United States as a result. It's also notable that CK Hutchison has not seen its shares suffer, despite Panama's announcement that it will perform an audit of its operations there.

Trump did on his second day revisit the prospect of raising import duties on Chinese goods, suggesting February 1 as a potential start date.

“We’re talking about a tariff of 10% on China, based on the fact that they’re sending fentanyl to Mexico and Canada,” Trump said during an event at the White House on Tuesday. But his comments are far more qualified than they were on the campaign trail.

“Other countries are big abusers also, you know it’s not just China,” Trump said. “We have a US$350 billion deficit with the European Union. They treat us very, very badly, so they’re going to be in for tariffs.”

Only on Wednesday have we seen any easing of Hong Kong stocks, with the Hang Seng index dipping 1.6%. That broke six straight trading days of gains, leaving the Hong Kong market up 4.8% since the start of last week.

Mainland markets also dipped Wednesday, with the CSI 300 index of the largest listings in Shanghai and Shenzhen down 0.9%. That still leaves them 2.0% higher than the start of last week.

The market response has been very measured to any new initiatives under Trump. Japanese stocks rose, with the broad-market Topix up 0.9% and the blue-chip, exporter-heavy Nikkei 225 up 1.6%. That leaves the Nikkei looking at a 3.0% gain since the start of last week.

Trump’s direction on foreign policy and trade is unpredictable. But the campaign-trail idea of 60% blanket tariffs on Chinese goods has been quickly dropped. Asian leaders will no doubt feel encouraged that there’s still time to make their case, and room to maneuver on trade, over the course of the next four years.