Our Chief Asia Economist Chetan Ahya discusses the potential
impact of reciprocal U.S. tariffs on Asian economies,
highlighting the key markets at risk.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan
Stanley’s Chief Asia Economist. Today: the possibilities of
reciprocal tariffs between the U.S. and Asian economies.
It’s Tuesday, February 11, at 2pm in Singapore.
President Trump’s recent tariff actions have already been far
more aggressive than in 2018 and 2019. And this time around,
multiple trade partners are simultaneously facing broad-based
tariffs, and tariffs are coming at a much faster pace. The risk
of trade tensions escalating has risen, and the latest
developments may have kicked that risk up another notch.
The U.S. president is pushing a sweeping tariff of 25 per cent on
all foreign steel and aluminum products. Trump has also indicated
that he would propose reciprocal tariffs on multiple countries –
to match the tariffs levied by each country on U.S. imports. This
potential reciprocal tariff proposal suggests that Asia ex China
may be more exposed to possible tariff hikes. As of now, Asia’s
tariffs on US imports are, for the most part, slightly higher
than US tariffs on Asian imports. And based on [the] latest
available data, six economies in Asia do impose [a] higher
weighted average tariff on the U.S. than the U.S. does on
individual Asia economies.
The tariff differentials are most pronounced for India, Thailand,
and Korea. These three economies may face a risk of a hike in
tariffs by 4 to 6 percentage points on a weighted average basis,
if the U.S. imposes reciprocal tariffs. Individual products may
yet face higher tariffs rates but we think [the] overall impact
from steel, aluminum and reciprocal tariffs will be
manageable.
But look, trade tensions may still rise further given that 7 out
of 10 economies with the largest trade surplus with the U.S. are
in Asia. Against this backdrop, policy makers may have to look
for ways to address the demands from the U.S.
administration.
For instance, Japan’s Prime Minister Ishiba has committed to
increasing investment in the U.S. and is looking to raise energy
imports from the U.S. This is seen as a positive step to reduce
the U.S. trade deficit with Japan. Meanwhile, ahead of the
meeting between President Trump and India’s Prime Minister Modi
later this week, India has already taken steps to lower tariffs
on the U.S., and may propose [an] increase in imports of oil and
gas, defense equipments and aircrafts to narrow its trade surplus
with the U.S.
However, as regards China is concerned, the wide scope of issues
in the bilateral relationship suggests that [the] U.S.
administration would cite a variety of reasons for expanding
tariffs. As things stand, China has been the only economy so far
where tariff hikes have stayed in place. Indeed, the recent 10
percent increase in tariffs has already matched the increase in
the weighted average tariffs that transpired in 2018 and 2019.
And we still expect that tariffs on imports from China will
continue to rise over the course of 2025.
To sum it up, there has been a constant stream of tariff threats
from the U.S. administration. While the direct effects of [the]
tariffs appear manageable, the bigger concern for us has been
that this policy uncertainty will potentially weigh on corporate
sector confidence, CapEx and growth cycle.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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