Eastspring Investments
Apr 2025 | 5 min read
Summary
The new US tariffs today have raised the US effective tariff rate from 2.2% at the end of 2024 to close to 20% in less than four months. Within Asia, Trump’s tariff shock is likely to weigh on growth in Vietnam, Korea, Japan, and China most, roughly in that order. While more time and clarity are needed to assess the secondary and tertiary effects on economies and sectors, the ensuing market volatility should present opportunities for active investors.
Our Chief Economist, Ray Farris, thinks that these tariffs, if sustained, will likely push US GDP growth down from 2.5% to about 0.6% - 0.8% this year. Tariffs are a tax on consumption and investment that history shows also generate broader welfare losses due to shifts in resources to lower productivity uses. These tariffs also come on top of other fiscal tightening measures of about 0.1% - 0.2% of GDP and rapid curtailment of immigration that is likely to cost US GDP 0.3% - 0.5%.
Additionally, US exports are likely to weaken in response to likely retaliatory measures from US trading partners, particularly China, the EU, and Canada. We assess the risk that these shocks culminate into a larger than estimated hit to the economy that turns into a recession as at least as high as the jump in market pricing of recession risk to just under 50%.
Within Asia, Trump’s tariff shock is likely to weigh on growth in Vietnam, Korea, Japan, and China most, roughly in that order. Effective tariff rates on these countries have increased to 47%, 16%, 20%, and 48% respectively since the start of the year. However, these tariff rate increases need to be scaled by the countries’ exports to the US as a share of their GDP.
More generally, all Asian economies are likely to face significant downward pressure on growth this year for three key reasons:
- The sharp increase in US tariff rates on virtually all Asian economies will reduce US demand for Asian exports directly
- The damage to the US, European, and other major economies from Trump’s tariff war will further depress their demand for Asian exports
- Trump’s decision not to impose punitive reciprocal tariff rates on Latin American or African economies creates incentives for companies to try to relocate production from Asia to these regions. The new effective US tariff rates on most Latin American and African countries are only 10% or lower
Please download the report to read more on the investment implications for Asia.
Interesting reads
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (200001028634/ 531241-U) and Eastspring Al-Wara’ Investments Berhad (200901017585 / 860682-K).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).
