What's Asia's reaction to Trump's tariffs, and which country will suffer the most? | DW News

Key Concepts

• Cumulative Tariffs: The total tariffs imposed on a country's exports.
• US Trade Balance as Benchmark: Using the US trade balance with a country as the primary factor in determining tariff levels.
• Mitigating Factors: Temporary measures countries can take to lessen the impact of tariffs, such as currency depreciation and fiscal support.
• Globalization: The interconnectedness of economies through trade, investment, and technology.
• Sectorial Tariff Exemptions: Specific industries or products that are excluded from tariffs.

Impact of US Tariffs on Asian Economies

Higher Tariffs for Asian Countries

• Several Asian economies face significantly higher cumulative tariffs compared to others. Examples include:
  • China: Approximately 54% cumulative tariffs.
  • Cambodia: Approximately 49% cumulative tariffs.
  • Vietnam: Approximately 46% cumulative tariffs.
• These higher tariffs disproportionately affect poorer countries in Southeast Asia, South Asia, and other developing Asian nations.

US Trade Balance as the Determining Factor

• The US uses a country's trade balance as the primary benchmark for imposing tariffs.
• The calculation involves a ratio based on the US trade balance with the country divided by US imports, then divided by two.
• This approach makes it difficult for these countries to lower tariffs because it's based on the overall trade outcome rather than specific trade practices or tariff differentials.
• To rectify the situation, these countries would need to import more US goods, including security goods (e.g., Lockheed Martin products), Boeing aircraft, or agricultural products.
• However, many of these countries are not in a financial position to significantly increase imports of US goods.

Immediate and Long-Term Consequences

• Immediate Pain: The tariffs will likely cause immediate economic hardship for many Asian countries.
• Limited Relief: Some exemptions, such as those for semiconductor commodities, may provide temporary relief. However, it's unclear whether these exemptions signal a broader easing of tariffs or are merely intended to reduce costs for US companies.
• Difficulty Finding Alternatives:
  • Asian exporters will struggle to find alternative markets in the short term.
  • US importers will also find it difficult to find alternative suppliers because many low-cost producers in Asia are affected.
• Sharp Downturn: The tariffs are expected to lead to a sharp decline in US demand for Asian goods, causing significant economic pain for Asian countries.

Lack of Countermeasures

• Most Southeast Asian economies have been hesitant to implement countermeasures to avoid further antagonizing the US.
• Many Asian countries hope to negotiate lower tariffs to maintain their export competitiveness in the US market.
• Profit margins for exports to the US are generally higher compared to competing within Asia, where there is already a surplus of goods, particularly from China.
• Limited opportunities exist to divert exports to other markets like the EU.

Potential Mitigating Factors

• Asian countries may attempt to mitigate the impact of tariffs through:
  • Currency depreciation against the US dollar.
  • Lowering interest rates.
  • Implementing targeted fiscal support to offset the decline in export demand.
• However, these measures are considered temporary and do not address the underlying problem.

Long-Term Growth Models

• The tariffs disrupt the traditional path to wealth for many developing countries.
• These countries will need to find new growth models for the future.

The Future of Globalization

Threat to Globalization

• The tariffs, combined with other economic factors, pose a significant threat to globalization.
• If the US erects trade barriers with China, the EU may also retaliate and impose barriers on Chinese goods.
• Asian countries, facing both tariff barriers to the US market and a flood of Chinese goods, will face significant challenges.
• This situation could lead to a fragmentation of the global economy and a decline in international trade.

China's Role

• China's cumulative tariffs are already high (54%), and additional tariffs could push them to over 70%.
• China is unlikely to stop exporting, which could lead to further trade tensions with other countries.
• If China's domestic demand stimulus is insufficient, countries like the EU may impose trade barriers on Chinese goods.