Trump’s Re-election Sparks Fears of Wider Asian Tariff Blitz
Donald Trump’s return to the White House has reignited concerns about escalating trade tensions, particularly with China. But according to Goldman Sachs, the impact may extend far beyond Beijing, potentially triggering a wave of new tariffs against other Asian nations that have seen significant trade surpluses with the United States. While the bilateral trade deficit with China has decreased since Trump’s first term, deficits with other Asian exporters have ballooned, prompting fears of a wider “whack-a-mole” approach to tariff imposition, targeting any country perceived as contributing to an unfavorable trade balance for the U.S.
Key Takeaways: Trump’s Trade Policies and Their Asian Impact
- Trump’s re-election increases the likelihood of significantly higher tariffs on Asian nations beyond China, driven by a focus on reducing bilateral trade deficits.
- Countries like South Korea, Taiwan, and Vietnam, which have experienced substantial trade gains with the U.S., are particularly vulnerable. Their record trade surpluses make them prime targets for retaliatory tariffs.
- The impact will vary depending on the country’s economic structure and openness, with some economies, like Taiwan, potentially facing greater challenges than others, such as Singapore.
- The “lengthening” of supply chains—where components originate in China even if final assembly occurs elsewhere—may not fully mitigate the risk of tariffs. Trump administration’s focus is likely to be on the final destination of goods and the overall trade deficit.
- Beyond tariffs, continued pressure to relocate supply chains away from China towards Southeast Asia, India, and Mexico is anticipated, regardless of specific trade policies.
The Expanding Target: Beyond China
While the Trump administration’s trade war with China initially focused on reducing the U.S.’s substantial trade deficit with the country, the effects have been far reaching. Goldman Sachs’ Chief Asia-Pacific Economist, Andrew Tilton, notes that while the deficit with China has shrunk somewhat, surpluses with other Asian nations have increased dramatically. This shift suggests a potential broadening of the trade war’s scope, with countries benefiting from the diversion of trade away from China now potentially facing the brunt of new tariffs.
Record Surpluses and Potential Targets
South Korea, with a record $44.4 billion trade surplus in 2023, stands out as a primary concern. Its strong automotive exports account for a significant portion of this surplus. Similarly, Taiwan’s export growth is notable, reaching a record $24.6 billion in the first quarter of 2024, a massive 57.9% increase compared to the previous year. A remarkable portion of this increase came directly from information technology and audio-visual products. Vietnam’s surplus is even more staggering, reaching an astonishing $90 billion between January and September of 2024.
Other Asian nations, like India and Japan, also have trade surpluses with the U.S., though their surpluses may be less significant than those of the aforementioned countries. Even these countries are at risk as Trump seeks all trade deficits to be reduced. The concern expressed from experts is that the Trump administration may start to scrutinize these surpluses with the same intensity that was shown to the trade deficit with China during his first term.
Varying Impacts Across Asian Economies
The potential impact of Trump’s tariffs is not uniform across Asia. Barclays Bank analysts suggest that economies with more open trade policies will likely experience “greater pain”. This is due to the fact that more open economies are very likely to be more interconnected and dependent on U.S. trade.
Differential Vulnerability
Taiwan, with its significant reliance on exports to the U.S., is seen as being particularly exposed to this threat. Korea and Singapore, although with potential trade conflicts, are considered less vulnerable while countries like Thailand and Malaysia may experience a more moderate impact.
Supply Chain Dynamics and the “Lengthening Effect”
Mari Pangestu, a former Indonesian trade minister, highlighted a crucial aspect of the changing global trade landscape. Despite the apparent shift of trade away from China following the initial round of tariffs, the reality is that China continues to play a central role in global supply chains, often supplying components for goods assembled elsewhere. This shift is being referred to by experts as a ‘lengthening of the supply chain’.
Persisting Dependence on China
Pangestu’s analysis suggests that even with the apparent diversification of trade, a significant portion of components still come from China. This means that simply shifting final assembly to other countries does not necessarily shield them completely from the impact of future tariffs. In other words, it won’t remove the potential for retribution as the focus will likely be not where the final product assembled, but from where the components, and thus the value comes from.
**”But if you look at the supply chain, actually most of the components are still coming from China. We call it lengthening the supply chain. So in Trump 2.0, two things will happen. He will start noticing that [trade] is still going to China,”** she stated during the FT Commodities Summit. **”This is going to increase protection. Not just towards China, but to countries that have bilateral deficits with the U.S.”**
The Future of Asian Trade: Tariffs and Relocation
Goldman Sachs projects that Trump will impose additional tariffs averaging 20% on Chinese products in the first half of 2025, on top of the already announced 10% to 20% blanket tariff on all imports and additional tariffs of 60% to 100% on goods from China. These measures are likely to have a ripple effect, influencing trade relations between the U.S. and numerous Asian countries.
Continued Pressure on Supply Chains
Despite the uncertainly, Goldman Sachs anticipates pressure to shift manufacturing and supply chains, away from China, toward Southeast Asia, India, and Mexico will persist. This trend, however, is not entirely dependent on the outcome of trade negotiations, reflecting broader global economic drivers such as labor costs and logistical considerations. Even without significant new tariffs, the incentives for moving operations out of China are likely to continue.
In conclusion, Trump’s re-election carries significant implications for Asian economies. While the trade war with China may have initially reduced the bilateral deficit, it has inadvertently led to the growth of trade surpluses with other Asian nations, making them prime targets for potential new tariffs. While the exact impact remains uncertain, it is clear that Asian economies need to prepare for a potentially turbulent period of trade uncertainty and further pressure for supply chain relocation. This new reality underscores the fluid nature of global trade and the far-reaching consequences of bilateral trade imbalances when combined with the unpredictability of protectionist trade policies.
