[Reuters Analysis] Will Trump’s trade war be a 2018 replay in Asia? Probably not: Raychaudhuri

March 19 - While the unfolding tariff war has many similarities with Donald Trump’s first trade skirmish in 2018 – including levies on aluminium and steel and a “stop-go” trajectory – that’s where the resemblance ends. That could be bad news for much of Asia.

First, the scale is far higher this time around, and more countries are likely to come under the tariff net. In 2018, the average tariff revenue of the U.S., as a proportion of goods imports, increased from 1.5% to 2.9%, according to the Yale Budget Lab. If all of the currently proposed tariffs are implemented and remain in place through 2025, U.S. tariff revenue would increase to 9.5%.

Additionally, the Asian countries likely to be most pressured by U.S. tariffs today are different from those that were most vulnerable in 2018 because trade relationships have shifted meaningfully since then.

In 2018, almost 20% of China’s exports were to the U.S. By 2024, that figure was under 15%. China today exports much more to ASEAN countries, Africa and Latin America than to the U.S.

However, almost every other Asian economy’s export share to the U.S. has increased considerably, though this is partly due to trans-shipments from China. The most notable jumps were in Taiwan (from 11.9% to 23.5%), Korea (from 12% to 18.7%), Thailand (11.1% to 18.3%) and Malaysia (9% to 13.2%).

Moreover, trade surpluses with the U.S. have skyrocketed in Korea and Taiwan. While China and Mexico still had the largest surpluses with the U.S. in 2024 at $360 billion and $260 billion, respectively, Taiwan’s and Korea’s increased more than any other country’s.

AN EYE FOR AN EYE

The Trump administration is also planning to implement reciprocal tariffs as of April 2, meaning tariffs on U.S. imports from each country would match the tariffs on U.S. exports imposed by that country. It remains uncertain how these tariffs would be calculated and whether the U.S. will take into account various non-tariff barriers and domestic taxes like Value Added Tax (VAT) or Goods and Services Tax (GST).

The impact of reciprocal tariffs would differ significantly by nation. Yale Budget Lab estimates that under reciprocal tariffs, the Asian countries that could face the highest tariff increases are India and China, at 17 and 13 percentage points, respectively. (Of course, China has already been slapped with a broad 20% tariff.)

The impact of reciprocal tariffs on Asian economies may also not be proportionate to the size of the tax. India’s exports to the U.S. only represent 2% of GDP and China’s only 2.8%. So even double-digit tariffs increase would likely not make a huge dent in their economies.

In contrast, exports to the U.S. constitute more than 10% of Malaysia’s GDP, so the 9.9 percentage point tariff increase expected under reciprocal tariffs could take a big hit. Similarly, Thailand, Taiwan and Korea could all see their economies slow meaningfully if the proposed reciprocal tariffs are implemented and prove durable.

EQUITIES: NEW WINNERS AND LOSERS

The 2018 trade war clearly impacted Asian equities more than the U.S. market. From late January 2018, when the tariff war began, to early January 2019, the S&P 500 Index declined by 15%, while the MSCI Asia ex-Japan Index dropped by 25%.

Stocks in China and South Korea, the two largest Asian exporters, suffered the most, while Indian equities, a predominantly domestic market, were hurt the least.

In the latest trade skirmish, damage to Asian equity markets could come from multiple sources: currency depreciation as exports slump, domestic demand destruction as liquidity dries up, or more directly as corporates highly exposed to U.S. markets see revenues decline.

Importantly, corporate revenues in several Asian equity markets are now far more reliant on the U.S. than they were in 2018. The U.S. may have contributed only 4.7% to Chinese companies’ revenues in 2024, but compare that to 31.6% for Taiwanese companies, 13.9% for the Japanese and 12.8% for Korean. India isn’t entirely safe either, with 7.9% revenue exposure to the U.S., contributed largely by companies in technology services, business process outsourcing and generic drugs.

LET MR. MARKET BE THE JUDGE

Since President Trump’s second inauguration, the relative performance of Asian equity markets has been very different from what was seen in 2018. China, the laggard last time around, is now the best performer, while Thailand, Taiwan, Malaysia and India are among the worst.

So Mr. Market appears to have spoken, and he seems to be saying that, in Asia broadly, the second Trump trade war will be different – and potentially more painful – than the last.

(Manishi Raychaudhuri is the founder and CEO of Emmer Capital Partners Ltd. and the former Head of Asia-Pacific Equity Research at BNP Paribas Securities.)

Exports to U.S. as proportion of total

Trade surplus with the U.S. ($ millions)

Projected increase in effective tariffs for exports to the U.S. under reciprocal tariff regime (percentage points)

Exports to USA as percentage of GDP in 2024

Performance of Asian and U.S. equity markets during the 2018 tariff war

Asian equity markets: Proportion of corporate revenues from different geographies