Impact of Tariffs on Asia's Economy

By Rosa de Acosta

Hong Kong — President-elect Donald Trump recently used social media to announce his intention to implement significant tariffs on goods imported from Mexico, Canada, and China, starting on the first day of his second term. During his campaign, he expressed plans to impose new tariffs on all imported goods, which could change the dynamics of trade between the United States and its main trading partners, especially in Asia. This shift could lead to economic repercussions across the region.

The specific effects of these tariffs remain uncertain. Generally, a tariff is a tax levied on imported goods, which could negatively impact Asian economies that depend heavily on exports to the United States. For instance, Japan exported approximately $145 billion worth of goods to the US last year, which accounted for around 20% of its total exports. Moreover, in 2023, South Korea was the second-largest exporter to the US after China, with $116 billion in goods exchanged.

On the other hand, Trump's proposed tariffs on Chinese imports might create opportunities for some Southeast Asian nations, as companies may move their manufacturing operations from China to these countries. For example, the shoe retailer Steve Madden announced it would reduce its production in China by half to evade the tariffs, opting instead to source from Cambodia, Vietnam, and Mexico, among others.

As it stands, the US is a major export destination for several Asian countries in 2023. It was the top market for exports from China, Vietnam, Thailand, India, and Japan. Furthermore, it ranked as the second-largest market for South Korea and Indonesia, while it placed third for Malaysia and Singapore.

However, the trade situation is not reciprocal; the US mostly imports more from these Asian nations than it exports back. In the first three quarters of 2024, the US recorded its largest trade deficit with China, followed closely by Mexico and Vietnam, which had a deficit of $90.6 billion. Japan and South Korea were also among the countries with significant trade deficits with the US.

Though the trade deficit with China has reduced somewhat over the past year, deficits with nations like Vietnam and Thailand continue to grow as the US aims to limit its dependency on Chinese imports.

Trump's objective in raising tariffs is to diminish or eliminate the trade deficit, but many economists caution that these tariffs would essentially act as a tax on American consumers. They argue that companies will likely pass on the higher costs of imported goods to consumers, driving up prices domestically. For instance, Philip Daniele, CEO of AutoZone, remarked during a September earnings call that any tariff increase would ultimately result in higher prices for consumers.

—Additional reporting by CNN’s Rachel Wilson.

Tariffs, Trade, Economy