Impact of Tariffs on Asian Economies

By Rosa de Acosta

Hong Kong — President-elect Donald Trump recently announced plans for significant increases in tariffs on imports from Mexico, Canada, and China starting his second term. This move aligns with his previous promises during his campaign to impose new tariffs across the board on imported goods. Such changes could dramatically shift the trade dynamics between the United States and its major trading partners, especially in Asia, potentially leading to adverse economic impacts in those regions.

Tariffs are essentially taxes imposed on imported goods, and while they are designed to protect American businesses, they may have negative consequences for Asian countries that depend on exports to the United States. For instance, Japan exported goods valued at $145 billion to the US last year, accounting for roughly 20% of its total exports. Meanwhile, South Korea traded about $116 billion in goods with the US, making it the country’s second-largest export market after China.

However, not all Asian countries might suffer equally from these tariff hikes. Some Southeast Asian nations could see benefits as companies look to relocate their manufacturing away from China to evade the tariffs. A notable example is shoe retailer Steve Madden, which announced it would reduce its Chinese production by half and source more products from countries like Cambodia, Vietnam, Mexico, and Brazil.

In 2023, the United States remained the primary destination for exports from several Asian countries, including China, Vietnam, Thailand, India, and Japan. Conversely, the US also ranked as the second-largest export market for South Korea and Indonesia and third for Malaysia and Singapore. Interestingly, Mexico was the leading source of imports for the United States, followed by China and Canada, with six of the top ten sources of goods being Asian nations.

Despite this strong trade relationship, the flow of goods is not mutual. The United States often runs a trade deficit with many Asian countries, meaning it imports more than it exports. For example, in the first nine months of 2024, China was the country with which the US had the largest trade deficit, followed by Mexico and Vietnam, with the Southeast Asian nation seeing a deficit of $90.6 billion. Japan and South Korea also featured prominently in this list.

Although the trade deficit with China has decreased recently, deficits with countries like Vietnam and Thailand have risen as the US shifts away from Chinese imports. Trump’s goal is to raise tariffs on all imports to help reduce or eliminate the trade deficit, but many economists caution that these tariffs may act more like a tax on American consumers, as businesses typically pass the increased costs of imports onto shoppers.

One such warning came from Philip Daniele, the CEO of AutoZone, who stated during a recent earnings call, "If we get tariffs, we will pass those tariff costs back to the consumer." This translates to higher prices at the checkout line for American consumers, regardless of the political intentions behind the tariffs.

tariffs, economy, Asia