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.
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