Moody's: Shift in US policies could dampen trade, weaken growth in Americas and APAC

Moody's Investors Service says that while the nature of policies under the next US (Aaa stable) administration is uncertain, President-Elect Donald Trump's campaign proposals indicate that a shift in policies that could affect trade, foreign direct investment (FDI), and immigration is possible.

Moody's notes that since the global financial crisis, global trade has remained notably muted. A shift in the international orientation of the world's largest economy would exacerbate this situation, challenging output growth and potentially constraining policy space for trade-reliant and FDI-supported countries.

In addition, a tightening of immigration rules in the US -- as proposed by Mr. Trump during the election campaign -- would over time dampen growth in remittances from foreign workers, which are significant for some economies in Latin America and Asia Pacific.

Moody's conclusions are contained in its just-released 'Sovereign Monitor -- Focus on the Pacific Rim,' which brings together recent research on countries in the region, and provides an overview of sovereign credit trends.

Moody's publication comes as political, financial and business leaders from the 21 member economies of the Asia-Pacific Economic Cooperation forum -- better known as APEC -- gather in Peru (A3 stable).

While Moody's expects trade agreements that have already been implemented to remain in place following the change of presidency in the US, policies going forward could incentivize onshoring -- the repatriation of jobs at overseas-based suppliers back to the US -- and a focus on domestic production and sourcing.

Costa Rica (Ba1 negative) and Mexico (A3 negative) -- as the countries most reliant on exports of high-value-added goods and services, which would offer greatest onshoring potential -- would be most vulnerable in such a scenario.

Meanwhile, India (Baa3 positive) and the Philippines (Baa2 stable) could also suffer in the event of policies that disincentivized foreign sourcing of business services.

If demand from the US, the largest importer globally, were to slow markedly and durably as a result of a shift in government policies, international and intraregional trade would amplify the economic impact. The most open economies would be particularly vulnerable. However, we consider the probability of this scenario to be very low.

Over a longer period, a more insular climate in the US could also crimp FDI outflows. FDI from various countries finances a large proportion of the current account deficits among Latin American sovereigns, helping to reduce the region's dependence on more volatile portfolio inflows.

Moody's notes that worker remittances also provide a stable source of foreign-currency earnings that support current accounts, and underpin consumption and domestic economic activity. For sovereigns with wider current account deficits and thinner foreign reserves, or where growth is subdued, a slowdown in remittances would exacerbate such challenges.