Impact of Trump Reciprocal Tariffs on Asian Markets

Chris Kushlis, Chief Emerging Markets Macro Strategist at T. Rowe Price, shares his views on the implications of Trump’s “reciprocal tariffs” on Asian markets:

• The recently announced tariffs represent a significant increase in levies on Asian exports, and arguably more than anticipated by the market. The calculation of these tariffs is opaque as it incorporates non-tariff barriers and factors such as 'foreign exchange manipulation', leaving much uncertainty about how these elements influenced the final figures. The United States (U.S.) accounts for approximately 15% of exports from the region; tariff increases in the range of 20-35% would pose a meaningful headwind to growth this year, especially for the more open trade-oriented economies. Further, many Asian economies have a relatively high proportion of their export value added that ends up in the U.S., so the broad application of tariffs globally will hinder effects to redirect trade.
• Investors now must wait to see how policymakers respond. While there is openness to negotiation, it remains to be seen what measures Asian countries can take to significantly lower the tariffs they face, beyond reducing or removing tariffs on U.S. goods. Measures such as counter tariffs and currency depreciation could trigger an additional tariff response from the U.S., resulting in further complication for regional policymakers. More likely, focus will go toward supporting the domestic economies, where countries with policy flexibility could introduce monetary and fiscal stimulus in a bid to counteract the negative growth effects of the tariffs.
• Meanwhile, risk assets are expected to remain under pressure and volatile as companies assess the impact of these tariffs on their business plans and the potential timeframe for negotiations to reduce tariffs. Asset prices may stabilize and recover if and when the market gains confidence that these tariffs are a ceiling rather than a moving target.