After weeks and months of anticipation, US President Donald Trump unveiled sweeping new tariffs. The US announced two sets of tariffs. One is a base tariff of 10 per cent imposed on all imports to US. This base rate of tariffs will go into effect on April 5. Second is the country-specific tariff to be enforced from April 9. These are calculated based on how much each of these countries charge on US goods and then it is halved to reach “USA discounted reciprocal tariffs”.
Priyanka Kishore, Director and Principal Economist, Asia Decoded, said, “The US tariff, if implemented, would take the rate higher than the Smoot-Hawley Act, reaching an estimated 26-29 per cent compared to approximately 20 per cent in the 1930s. This challenges our view of resilient US growth this year. While we expected the Trump administration to act swiftly on tariffs, the scale and scope have exceeded our expectations. With heightened policy uncertainty and rising downside risks to investments, we now anticipate US growth to falter in the coming months.”
Asia worst hit by tariff
In terms of the worst hit, the Asia Decoded report stated that Asian economies have been hit hard by the new tariff announcements. Outside of China, which now faces a tariff rate of at least 54 per cent (including the 20 per cent tariff that was announced on 1 Feb), Vietnam (46 per cent), Taiwan (32 per cent), Thailand (36 per cent) and Indonesia (32 per cent) are amongst the US trading partners with highest tariff rates globally. Next in line are S Korea (25 per cent), Japan (24 per cent), Malaysia (24 per cent) and India (26 per cent), while Philippines (17 per cent), Singapore (10 per cent) and Australia (10 per cent) fare better.
Tariff impact on Asia: Growth outlook worrying
With this, the growth outlook has unambiguously worsened across the board. Last October, the IMF estimated that in a scenario of a global increase in tariffs by mid-2025, where all trade flows between the US, China and euro area are hit by a 10 per cent tariff and trade flows between the US and the rest of the world are hit by a similar amount on both sides, global GDP would be 1 per cent lower from the baseline by 2027. “It is safe to assume that global output will now take a larger hit,” Priyanka Kishore added.
Tariff impact on Asia: Risks of retaliation to US tariffs
The point here still remains whether Trump will proceed with the reciprocal tariffs as is, or the next few days see a flurry of negotiations and some carve outs. Risks of retaliation to US tariffs have also risen. However, Priyanka Kishore maintained, “…we don’t anticipate a strong retaliatory response out of Asia. Given the importance of exports as a driver of growth for the region, it would be in Asia’s economic interest to not worsen the already deteriorating outlook for global goods trade growth.”
Tariff impact on Asia: Inflation worries
To conclude, the report stated that growth pressures will dominate inflation in Asia this year. “Provided that retaliatory tariffs are avoided, and currency weakness is limited by central banks to between 3-5 per cent over the year, inflation should remain low in 2025. This should allow Asian central banks to focus on growth risks, and trigger a deeper rate cut cycle. We expect policy rates to be reduced by an average of 100 basis points in 2025,” Priyanka Kishore said.