BANGKOK — According to reports, the escalated trade war initiated by U.S. President Donald Trump in his second term presents a significant challenge to both large and small Asian economies, particularly as the region is anticipated to be a key driver of global economic growth.
Export-driven manufacturing and open trade policies have been instrumental in the economic transformation of China and other Asian nations over the past few decades. However, Trump’s imposition of tariffs, designed to incentivize companies to maintain or establish manufacturing facilities in the United States, disrupts trade agreements that often required significant political compromises from trading partners.
The White House has indicated that tariff increases will be based on various factors, including taxes, exchange rates, government subsidies, and non-tariff trade barriers. In addition to the tariffs expected to be announced on Wednesday, which Trump refers to as “Liberation Day,” a 25% tariff on imports of automobiles and auto parts is scheduled to take effect on Thursday.
Trump has also implemented levies against China, Canada, and Mexico; broadened tariffs on steel and aluminum; and imposed tariffs on countries importing oil from Venezuela. Further import taxes are planned for pharmaceutical drugs, lumber, copper, and computer chips.
Rising costs have already prompted numerous manufacturers to relocate from China to other economies in South and Southeast Asia, Africa, and Latin America. However, the uncertainty surrounding Trump’s approach to “reciprocal” tariffs may lead many to adopt a wait-and-see approach.
“There’s no script for how reciprocal tariffs get priced, and uncertainty is the only constant,” noted Stephen Innes of SPI Asset Management.
The following is an examination of the potential effects of higher U.S. tariffs on several major Asian economies.
China
Despite a reduction in trade following the initiation of a trade war with China during Trump’s first term, the U.S. trade deficit has continued to rise, reaching $295.4 billion last year.
China, as the world’s second-largest economy, has relied heavily on exports to compensate for weak domestic demand. The Communist Party has prioritized exports of automobiles, particularly electric vehicles, and batteries. However, tariffs of 27.5% on auto exports and 102.5% on EVs have effectively closed the U.S. market to Chinese automakers. China is the second-largest supplier of auto parts to the U.S., trailing only Mexico.
During Trump’s initial term, increased tariffs prompted leader Xi Jinping to advocate for a transition to high-tech production. This trend is likely to continue as U.S. pressure intensifies, resulting in job losses due to shifts in manufacturing patterns rather than direct harm from the tariffs themselves, according to a report by Raymond Yeung of ANZ Research.
As the U.S. has implemented successive rounds of tariff increases, adding an extra 20%, China has responded by raising its own import duties, targeting U.S. agricultural products. It has also expanded export controls, particularly on strategically important minerals used in high-tech electronics.
U.S. exports of liquefied natural gas (LNG) to China have decreased since the beginning of the year and are expected to decline further following Beijing’s imposition of a 15% tariff on U.S. LNG imports.
Japan
Prime Minister Shigeru Ishiba stated on Tuesday that his government is making final efforts to persuade the United States to exempt Japan from auto tariffs. The U.S. accounts for approximately one-fifth of Japan’s exports, or about 1.5 million passenger cars annually.
Despite major Japanese automakers such as Toyota Motor Corp., Honda Motor Co., and Nissan Motor Co. having factories in the U.S. and, increasingly, in Mexico, the automotive industry remains crucial in Japan. Nearly 5.6 million people are employed in auto-related jobs, according to the Japan Automobile Manufacturing Association.
Japan’s exports of electronics, machinery, chemicals, and steel are also potential targets. A central bank survey released on Monday indicated a decline in business sentiment among large manufacturers in the past quarter, marking the first such decline in a year. Tokyo’s Nikkei 225 share benchmark has fallen by over 10% in the last three months, while shares in Toyota Motor Corp. have dropped by 27%.
Taiwan
Exports constitute more than 60% of Taiwan’s economy, and the island recorded a trade surplus of nearly $74 billion with the U.S. last year. Computer chips are among Taiwan’s largest exports to the United States, along with computers, other office equipment, and consumer products.
Taiwan Semiconductor Manufacturing Corp. (TSMC) is expanding its U.S. factories in Arizona, attracted by U.S. incentives and its own strategic considerations. In early March, CEO C.C. Wei pledged $100 billion in new U.S. investments.
South Korea
South Korea had a $66 billion trade surplus with the U.S. last year, with automobiles, electronics, and computer chips comprising a significant portion. According to a recent report by Patrick Cronin of the Hudson Institute, the country could increase investments in the production of automobiles, steel, and semiconductors in the U.S., and also consider revising the Korea-U.S. Free Trade Agreement to promote more balanced trade.
Researchers at RaboBank suggested in a recent report that South Korea is among several major importers of LNG that may attempt to increase purchases of the gas from the U.S. to help balance trade.
Vietnam
Like many of its Southeast Asian neighbors, Vietnam has followed the example of Japan, China, and other major exporting nations by relying on trade and foreign investment to develop its economy.
It had the third-largest trade surplus with the United States last year, after Mexico and China, at $123.5 billion. Its primary exports are machinery, textiles, and footwear.
A 14% increase in exports contributed to Vietnam’s economy expanding at a robust 7.1% annual rate last year. The government recently announced that it would reduce tariffs on LNG, automobiles, ethanol, and certain other agricultural products in an effort to appease Trump and reduce its trade surplus. Vietnam has also agreed to a five-year trial launch of Elon Musk’s Starlink satellite internet service.
India
According to the U.S. Trade Representative’s office, India, the world’s most populous country, had a trade surplus of nearly $46 billion with the U.S. in 2024. Its main exports are medicines and the chemicals used to manufacture them, along with pearls, diamonds, and other gems.
Exports account for just under a quarter of India’s GDP, providing millions of jobs, and the U.S. is its largest overseas market.
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