LIVE MARKETS-Mexico, Thailand, Malaysia most at risk among emerging markets from US tariffs

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MEXICO, THAILAND, MALAYSIA MOST AT RISK AMONG EMERGING MARKETS FROM US TARIFFS

With most investors closely watching how Donald Trump's plan to impose reciprocal tariffs on all countries will unfold, emerging market economies are in the eye of the storm.

Mexico, Thailand and Malaysia are at the highest risk from reciprocal tariffs, according to an analysis by the Institute of International Finance, given their dependence on U.S. trade and high tariff differentials.

Mexico, for one, has a tariff differential of 5%, as per the IIF, while the U.S. is its biggest trading partner.

The IIF notes that most emerging markets have, for years, taken advantage of a pretty uneven tariff landscape - exporting goods to the U.S. while imposing high taxes on U.S. imports back home. South Korea, for example, imposes an average tariff of 14.4% on U.S. goods while its exports face a U.S. effective tariff rate of 0.5%.

For their analysis, the IIF took into account the size of those discrepancies, as well as the reliance of each economy on U.S. exports.

However, in the case of Mexico, the IIF says the U.S. may temper retaliation given the potential negative impacts on U.S. companies that rely on goods manufactured there.

Vietnam is the EM economy most exposed to U.S. trade, with exports to the U.S. accounting for nearly 30% of its GDP. However, given the low tariff differential, the IIF says it will be less impacted by tariff escalations.

Overall, the threat of reciprocal tariffs throws yet another wrench in the works for EMs already struggling with narrowing rate differentials, inflation, and slowing growth.

"EM countries will be forced to rely on diplomatic negotiations, trade diversification, or targeted domestic measures to mitigate the fallout," write the IIF's Marcello Estevão and Jonathan Fortun.

While U.S. tariffs are expected to be rolled out gradually, the IIF says the continued uncertainty is likely to weigh on global trade and financial flows in the months ahead.

(Lisa Mattackal)

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