Asian markets in particularly are looking forward to a major shot in the arm. That optimism from Wall Street looks set to blanket the entire region, buoyed by Alphabet’s stellar 5%-plus rise after market close. Climate tech stocks are on positive momentum with a 2% rise in the S&P 500 today. That explosion has generated significant buzz and optimism around the hope of a corresponding Asian investor rally. This increase comes at an important moment. Washington is currently and urgently crafting a new U.S. trade strategy to remake the international trade order.
To that end, the United States is actively working with Japan to develop a trade playbook. This playbook will hopefully establish an example for future reciprocal EGA agreements, most notably expected with India and South Korea. This second strategy is more about redirecting trade flows away from China’s enormous industrial base. It routes trips to prevent diversion in developed supply chains. The U.S. is currently negotiating those bilateral terms in earnest with Tokyo. Together with other moves, this initiative represents a step toward developing a network of “friend-shoring” allies to decrease critical supply chain dependence on China.
Japan is the first test case for what would be a new, hugely ambitious trade agreement. Washington’s long-term strategy is focused on enabling countries like Japan to develop alternatives to Chinese production capacity. This policy direction places equal emphasis on maintaining security and stability in global supply chains. Yet the U.S. administration, headed by President Trump, is a key player in these negotiations. Advocates will be watching to see how he uses his clout as negotiations continue.
The implications of this trade playbook are really profound. The United States is creating new trade dynamics to build economic alliances away from adversarial nations. Beyond that, it seeks to stop China from using its power to export dangerous deflationary pressures onto Western economies. We know the U.S. administration has to be very careful to not make any changes that risk creating a new supply chain crisis. The repercussions of such a crisis would be felt deeply by global markets.
As Asian investors follow closely to these recent changes, they will be in a position to benefit from the encouraging signals coming out of Wall Street. The recent comeback in the S&P 500 and subsequent recovery of cryptocurrencies and other risk assets have gotten people talking. Traders are salivating at the prospect of windfall profits. Against this backdrop of growing bilateral cooperation, most observers agree that Asian markets stand to reap significant rewards.