THE WINNERS & LOSERS OF TRUMP’ TARIFFS

The dollar continues its rise on the specter of a Trump presidency, with financial markets, especially EM Asia assets fretting implications of his policies, especially tariffs. Given his persistence devotion to tariffs, some form of trade barriers is expected to the US, the question of whether for everyone or just only targeted countries such as China or even Vietnam, which has risen to capture more supply chain reshuffling than most in Southeast Asia. In this note, we answer three key questions for EM Asia pertaining tariffs. 

The first is who will lose in Asia if Trump imposes 10% higher tariff on the rest of the world, which is not our base line assumption. Given that Vietnam has the highest export as a share of GDP exposure, it will be the largest loser. China, while having the largest export to the US in value, has a much smaller exposure in such a scenario (Vietnam’s total export to the US is 22.8% vs China’s 2.8% of GDP in 2023). The economies with the least exposure to the US are Australia, Indonesia and India.

The second question is what if Trump tariffs only targets China? Of course, this will be negative for China with Indonesia export sectors most affected in EM Asia given its exposure to China via direct exposure as well as indirect via commodities. During Trump 1.0, Vietnam gained export share to the US in all product category. We expect it again to be a bigger winner. Malaysia, too, will benefit in medium to high-tech manufacturing. Thailand also will attract more investment as well as India, but to a much lesser extent due to less favorable investment environment. Currently, despite diversifying, the items with the largest dependency on China in the US are baby carriages, toys, games and sporting goods with 74% dependency on China, which will be prime for further diversification to the rest of Asia.

The third question is whether the gains by ASEAN, especially Vietnam, is just exports masking rerouting from China. A study has shown that it has increased but much less than assumed. Our analysis shows that Vietnam gained market share in the US at the expense of China for the largest value item – telecommunications and sound recording. At the same time, Vietnam’s import from the rest of the world, including from China and rest of Asia, has declined for same item. This suggests that Vietnam has enough established supply chain in exports of telecommunication and the growth of US exports is not merely rerouting. Overall, Vietnam linkages of trade has increased across the world, from China to North Asia, the EU, ASEAN, the US.  Vietnam is the center of key trade liberalization and attract global manufacturing FDI, establishing itself as an increasing vital link to global supply chains.