Emerging Markets Rattled as Trump Dials Up Tariff Threats

Emerging markets are experiencing significant turmoil as President Donald Trump intensifies his threats of imposing tariffs. The latest announcement regarding new duties on Chinese goods has sparked concerns about a potential trade war between the world’s two largest economies.

Impact on Asian Markets

On a particularly difficult day for Asian stocks, markets in Jakarta were among the hardest hit, with the country's stock market entering bear territory. The Indonesian central bank has vowed to intervene as the rupiah fell to a five-year low. Similarly, Thailand's equity index is nearing bear market status, reflecting the widespread apprehension. In Hong Kong, Chinese shares dropped by 3.6%, marking the steepest decline since October, while the mainland benchmark fell by 2%.

“The ongoing threats of tariffs from Trump are clearly affecting market sentiment, which remains fragile, especially with the dollar rebounding,” commented Kok Hoong Wong, head of institutional equities sale trading at Maybank Securities Pte.

Investor Concerns

Investors in emerging markets are grappling with uncertainty regarding the direction of Trump's trade policies and how the Federal Reserve may adjust interest rates in response. The fear of increased tariffs combined with sluggish global demand weighs heavily on export-dependent countries such as Thailand. Indonesia, despite seeing some bond inflows, is now contending with increasing capital outflows.

The MSCI Inc.'s benchmark for emerging market equities fell by 2.2%, the most significant drop since October, while the currency index decreased by 0.3%.

Trade-War Fears and Economic Consequences

Trump’s recent announcements have inflamed fears of an expanding trade war, particularly after declaring new tariffs on China and proposing levies on Mexico and Canada. Economists warn that these measures could lead to recession in Mexico and Canada, raising inflationary pressures in the U.S.

“Trump's aggressive stance on tariffs against China, Mexico, and Canada could result in prolonged higher interest rates in the U.S., leading to a stronger dollar,” noted Xin-Yao Ng, a fund manager at abrdn.

This week, the Bloomberg Dollar Spot Index increased by 0.8%, while a measure of Asian currencies faced its worst week in over three months. “Though there is still a chance for agreements to be reached, foreign exchange markets are firmly in a defensive position,” ING Bank stated in its insights.

Ongoing Withdrawals from Emerging Markets

As the climate of trade tensions continues to affect emerging markets, investors are pulling their funds out, generating a series of losses. Emerging markets have been among the worst performers in global stock indices this year. Notably, South Korea’s Kospi Index plummeted over 3% just on that Friday.

Global funds have consistently sold Thai stocks, making Thailand the worst-performing equity market in Asia for 2025, with close to $10 billion in outflows recorded over the past two years. In February alone, $934 million of Indonesian shares were sold, signaling a trend of five consecutive months of outflows from the country, as indicated by Bloomberg data.

Emerging, Markets, Tariffs