Following President Trump’s announcement of a release date on April 2nd, a few things stand out. Universal duties of 10% are set, while China is grappling with a 30% tariff, a reduction from the previously staggering rate of 145% due to its retaliations against the US.
However, there’s a lot of uncertainty regarding tariff rates in various countries after Trump announced a mutual tariff suspension for 90 days. As economists analyze the fallout, many predict that the Asian economy will bear the brunt of these changes.
This is largely because the US is a vital export market for Asia, with China acting as its primary economy and main importer. Consequently, any economic slowdown in the US or China could significantly affect Asia.
In the latest prediction from the International Monetary Fund, growth has been projected to drop from last year’s 2.8% to 1.8%, with China’s growth slowing from 5% to 4%. The IMF has also revised the outlook for emerging Asian economies, lowering it from 5.3% in 2024 to 4.5% this year.
Another factor to consider is how the US trade representatives determine mutual tariff rates, which largely hinge on the size of the bilateral trade surplus with the US. Based on this, Asian economies currently face the highest mutual tariffs among all regions.
For instance, economists at Morgan Stanley have found that the weighted average tariffs on Asian goods surged from 4.8% in January to nearly 44% last month.
According to reports, six countries that are part of the Association of Southeast Asian Nations (ASEAN) are facing mutual tariffs ranging from 32% to 49%. ASEAN is significant as it is China’s largest trading partner and the fourth largest for the United States.
Vietnam is feeling the pinch with mutual tariffs hitting 46%, largely because it served as an avenue for multinational companies to bypass US tariffs during the US-China trade war in Trump’s first term. During negotiations, when Trump suggested reducing US obligations on goods to zero, his advisor Peter Navarro dismissed it, claiming it didn’t tackle non-tariff barriers.
Many observers are curious about how ASEAN members will adapt their export-driven strategies and trading patterns if these tariffs stick around. Previously, ASEAN was the fastest-growing region globally, benefiting from the US’s free trade policies.
The Asian financial crisis of the late 1990s posed a significant challenge to the region. While it had relatively stable exchange rates, the crisis prompted sudden currency depreciation when the property boom collapsed between 1997 and 1998, leading to significant capital outflows.
In the past, they ran a substantial current account deficit, which resulted in underestimating their currency’s value and accumulating large holdings in dollar-denominated assets.
Today, the situation is markedly different. Most nations in the region are either maintaining balanced trade or running current account surpluses. Their currencies have strengthened against the dollar, decreasing the risk of capital flight.
Nonetheless, Southeast Asian policymakers are grappling with the trade conflict between the US and China.
China is attempting to position itself as a champion of free trade in response to Trump’s tariffs. President Xi Jinping has been touring neighboring countries to reinforce this idea.
In contrast, the US is working to align these countries against China. Treasury Secretary Scott Bescent has claimed that the US holds an advantage over China in their trade disputes, emphasizing hopes for favorable deals with various partners.
On their end, Southeast Asian governments have long sought to avoid being forced into a stance between the US and China, feeling they are being unfairly penalized for facilitating businesses moving production from China.
Interestingly, Asia’s export-focused development strategies have historically been encouraged by the US because they promote growth and efficiency, a stance that starkly contrasts with the import-substitution policies seen in Latin America decades ago.
However, the irony lies in the current US approach, which seems to embrace those outdated policies while simultaneously threatening punitive tariffs, all while trying to foster closer ties with the Asian economies. When Trump first took office, promoting the Trans-Pacific Partnership, aimed at reducing trade barriers and enhancing investment, underscored a desire to counter China’s influence in the region.
Sadly, that ambition is now jeopardized by current policies.
