Impact of Tariffs on Asia's Economy

By Rosa de Acosta

Hong Kong — President-elect Donald Trump recently declared his intention to impose significant increases in tariffs on goods imported from Mexico, Canada, and China, set to commence on the first day of his second term. This follows his previous commitments made during the campaign to apply new tariffs on all imported goods. The proposed changes could significantly alter the trade dynamics between the United States and its major trading allies, especially in Asia, leading to potential economic consequences.

Tariffs are essentially taxes levied on items brought into a country, and while the broader impacts remain uncertain, they are poised to negatively affect Asian countries that depend on exports to the U.S. to support their economies.

For instance, Japan exported $145 billion worth of goods to the U.S. last year, accounting for approximately 20% of its total exports. In 2023, South Korea became the second-largest exporter to the U.S. after China, with $116 billion exchanged between the two nations.

Conversely, the tariffs on Chinese imports might present opportunities for some Southeast Asian countries. As manufacturers look to relocate from China, neighboring nations may benefit from increased investments and production shifts. For example, shoe manufacturer Steve Madden has announced plans to reduce its production in China by half, opting to source goods from Cambodia, Vietnam, Mexico, and Brazil instead.

In 2023, the U.S. emerged as the largest export destination for China, Vietnam, Thailand, India, and Japan. Additionally, the U.S. stood as the second-largest recipient of exports from South Korea and Indonesia, trailing only behind China, while it ranked third for Malaysia and Singapore.

The U.S. imports the most goods from Mexico, followed by China and Canada. Interestingly, six out of the ten primary sources of U.S. imports are in Asia.

However, the trade situation is not reciprocal. The U.S. often operates at a trade deficit with several Asian countries, importing more than it exports. In the first nine months of 2024, the most significant trade deficit was recorded with China, followed by Mexico and Vietnam, with a deficit of $90.6 billion with Vietnam alone. Notably, both Japan and South Korea are also among the top ten countries contributing to the trade deficit.

While the trade deficit with China has decreased over the past year, deficits with countries like Vietnam and Thailand are climbing, as the U.S. seeks alternatives to Chinese goods.

President Trump aims to raise tariffs on all imports to narrow or eliminate the trade deficit. Nevertheless, economists caution that tariffs generally act as a tax on Americans, leading to increased prices domestically as businesses transfer the added costs of imports to consumers. For example, Philip Daniele, the CEO of AutoZone, indicated during a recent earnings call that "if we get tariffs, we will pass those tariff costs back to the consumer."

—Contribution by Rachel Wilson.

tariffs, trade, Asia