INSIGHT: Asia faces tariff hikes after Trump’s re-election

SINGAPORE (ICIS)–Donald Trump’s re-election as US president sets the stage for economic turbulence in Asia as regional businesses brace for significant increases in US tariffs.

• Trump set to impose levies of 60% or more on Chinese goods
• US tariffs on China to accelerate economic decoupling
• China must counteract fallout from potential US trade protectionism

Asian financial markets opened mixed on Thursday as investors assessed Trump’s return to the White House after winning the 5 November US presidential election, with focus turning to the potential long-term impact of his economic and foreign policies.

The other prominent victory for the Republican Party was re-taking of the US Senate, with the possibility of retaining control of the House of Representatives as well, which would give Trump unified control of the government.

At 02:40 GMT, Japan’s Nikkei 225 slipped 0.39% to 39,335.52, South Korean benchmark KOSPI composite was 0.21% lower at 2,558.25 and Hong Kong’s Hang Seng Index edged 0.48% higher to 20,635.64. China’s mainland CSI 300 index was up 0.38% at 4,038.85.

Chinese energy major PetroChina was up 0.52% in Hong Kong, LG Chem was down 3.11% in Seoul and Mitsui Chemicals rose 1.78% in Tokyo.

POTENTIAL TARIFFS
Trump has pledged to impose blanket tariffs of up to 20% on imports from all countries, with even steeper levies of 60% or more on Chinese goods, citing unfair trade practices that have contributed to US economic decline.

China is expected to remain the primary target of additional US tariff measures due to its significant trade surplus with the US.

The US has also become the top target of China’s anti-dumping cases for chemical imports, underscoring growing trade barriers between the world’s two biggest economies.

While China will likely retaliate against new trade policies, its response will likely be measured to avoid escalating tensions.

“Trump has the legal authority to implement tariffs without Congressional approval, and we expect trade restrictions will be imposed quickly,” Japan’s Nomura Global Markets Research said in a note on Thursday.

According to Nomura’s forecasts, 60% tariffs on Chinese imports are likely to take effect by mid-2025.

Additionally, a blanket 10% tariff may be imposed on all countries next year, although Canada and Mexico are expected to be exempt due to existing free-trade agreements.

“The most pronounced impact on Asia will likely be through Trump’s policy on trade,” UOB Global Economics & Markets Research economists said in a note on Thursday.

“It remains to be seen when and whether Trump will be able to carry through his tariff threats in their entirety.”

Higher US tariffs on Chinese imports would likely speed up the economic separation of the world’s two largest economies and significantly disrupt supply chains across Asia, according to analysts.

Imposing new tariffs also increases the risk of China taking retaliatory measures, potentially jeopardizing crucial collaborations on pressing global issues like climate change and artificial intelligence (AI).

“US-China relations are already frosty, and trade tariffs (if implemented) may exacerbate the situation,” Singapore-based bank OCBC said in a note.

“However, Trump is also a negotiator and may be inclined to cut a deal if he gets what he wants. Hence, the question is whether there will be a deal. The strategic industries most at risk remain advanced manufacturing, especially semiconductors, EVs [electric vehicles], solar panels etc.”

In 2023, US imports from China hit a 14-year low of $427 billion, equivalent to 2.4% of China’s nominal GDP.

Since 2021, trade tariffs on China have been ratified and extended under US President Joe Biden.

As a result, China lost its status as the US’ main trade partner for goods.

The proportion of Chinese imports to the US fell significantly in the past two years from almost 19% at the start of 2022 to only 13.5% at the end of 2023, according to ratings firm Moody’s.

The proposed 60% tariffs on Chinese goods would substantially impact China’s growth, effectively cutting off US demand for a large portion of Chinese imports.

“Given the structural slowdown in its economy, China needs to offset the negative impact from any potential new trade protectionist measures with stronger domestic policy responses in order to stabilize growth,” UOB said.

SPOTLIGHT ON CHINA’S NEXT MOVES
The ongoing National People’s Congress Standing Committee meeting on 4-8 November is under intense scrutiny as market observers await announcements on China’s fiscal policy support.

Key decisions expected include an additional yuan (CNY) 6 trillion ($836 billion) bond issuance to address hidden local government debts and CNY1 trillion for bank recapitalization.

The upcoming Politburo meeting in early December and the Central Economic Work Conference (CEWC) will outline China’s economic agenda for 2025.

These gatherings will set the stage for the National People’s Congress (NPC) in March 2025, where pivotal economic targets will be unveiled, including GDP growth, fiscal deficit, and local government special bonds issuance quota.

These announcements will provide crucial guidance on China’s economic direction for the year ahead.

While China is a primary focus, other regions including ASEAN are also exposed to potential policy risks due to their significantly increased trade surpluses with the US since 2018.

This surge is largely attributed to supply chain diversification aimed at evading tariffs and trade restrictions implemented during Trump’s first term.

“In ASEAN, there continues to be positive spillovers from the supply chain shifts leading to a brighter trade outlook this year while import demand strengthened across key Asian countries amid improving job market and domestic policy support,” UOB said.

Asian exports will face more scrutiny, there will more regulatory headaches, but the region’s scale, excellence in manufacturing and logistics, strong corporate and public sector balance sheets will hold them in good stead during Trump 2.0, Singapore-based bank DBS said in note.

With more Chinese companies offshoring export-focused production to southeast Asia, a second Trump administration may start to target these countries for trade-related violations, risk and strategic consulting firm Control Risks said.

“One area to watch would be southeast Asia’s automotive sector, where Chinese players are flooding and dominating the original equipment manufacturer industry as the region gears up to fulfil ambitions of being a hub for the production, assembly and export of electric vehicles in the coming decade.”

“Tariffs are an unambiguous negative for the region, but Asia’s strong ties with the US and China would survive Trump,” DBS said.

“The region’s openness to trade and commerce makes it more attractive to investors, especially as the contrast with an inward-looking West becomes stark. This election marks a firm rightward shift of the US; Asia has to learn to live with it.”

Insight article by Nurluqman Suratman

($1 = CNY7.18)

Thumbnail image: At Lianyungang port in China on 25 October 2024.(Costfoto/NurPhoto/Shutterstock)