Economists predict uncertain trade outlook in Trump presidency

Economists of National Australia Bank Limited said US and Chinese authorities are likely to work out a deal to avoid tariff hikes and trade wars after Donald Trump was elected president of the United States, although they remain concerned about the new president causing problems for trade.

"Trump said he will declare China a currency manipulator on day one of his presidency. In the worst case, that would see America increasing tariffs by at least 15 percent. If that happened, then China would retaliate and you will get into a trade war. I would hope what actually happens would be that the US administration and Chinese authorities get together and work out some sort of deal that doesn't involve tariffs and trade wars," said Alan Oster, National Australia Bank's group chief economist.

If Trump imposed a 45 percent tariff on imports from China as he has pledged, the trade volume between the two countries would fall by 25 to 60 percent, depending on the progress of economic recovery in the US, said Christy Tan, the bank's head of market strategy and research for Asia.

"As his decision on [the] tariff hike is still unclear at the moment, the currency market will fluctuate during the following months, and the renminbi may drop to 7.1 against the US dollar," Tan said.

She forecasts that the Chinese currency will continue to weaken against the US dollar or remain steady, which will be mainly affected by the US Federal Reserve's decision on the interest rate hike in December and Trump's signals on whether he'll declare China a currency manipulator.

Oster said the Fed's reaction likely depends on how volatile the equity and currency markets are in the next few months or so. If the markets are calm, he suspects the Fed would still take action in December. The economists of National Australia Bank forecast a rate rise in December and then two rate rises a year until the Fed gets to the terminal rate of around 2 percent.