TOKYO – Hopes that Donald Trump is more interested in trade deals than trade wars are fading fast. While the US president told reporters aboard his Air Force One plane that a new trade deal with China was “possible”, the broad signals are for more trade war pain to come for Asia.
The 10% tariffs Trump slapped on China and then 25% on aluminum and steel were economic drag enough. But the 25% taxes Trump announced this week on autos, chips and pharmaceuticals, to be formalized on April 2, raises the stakes considerably for Asia’s outlook.
Waves of panic are coursing through boardrooms from Tokyo to Seoul to Bangkok. Executives at Toyota, Honda, Nissan, Hyundai, Kia and other automakers are now bracing for the worst-case scenario.
In Thailand, known as the “Detroit of Asia” for its car-making prowess, chieftains and government officials alike are bracing for the ways Trump 2.0 might upend auto supply chains.
“Anticipated tariffs on cars pose a particular threat to Japan and South Korea,” says Dave Chia, an economist at Moody’s Analytics.
Japan’s Chief Cabinet Secretary Yoshimasa Hayashi says Tokyo will “respond appropriately by looking into the details of the (tariffs) when they are revealed and how they impact Japan.”
Hayashi stresses that the US is a vital market for Toyota and other Japanese automakers. “We have already raised the issue with the US government, given the importance of the auto industry,” Hayashi says.
Yet Southeast Asia is increasingly in harm’s way, too. Kriengkrai Thiennukul, chairman of the Federation of Thai Industries, notes that boardrooms in Bangkok are at a loss to discern whether the economy is in an enviable place or a disastrous one.
Taking the half-glass-full view, Kriengkrai says that “we may benefit if car companies decide to relocate or expand their production facilities in Southeast Asia, including Thailand, which is a major manufacturing base.”
But no one really knows how big, or how far, Trump will go with curbs on imports into the world’s biggest economy. The first month of Trump 2.0 offers few indications that he’ll leave his “Tariff Man” cape at home.
True, Trump’s trade curbs aren’t as draconian as he has threatened. The levies on China so far are a far cry from 60% or even 100%. Though smaller than feared, in some respects, Trump is going rather wide with his taxes.
Trump’s latest fascination with “reciprocal” tariffs means essentially every statistically significant economy is now looking over its shoulder. Which, of course, may be the point. The calculus may be to rack up anticipatory concessions around the globe.
But with Trump shooting first with tariffs and asking questions later, it’s fair to wonder if the optimists thinking it’s only a negotiating tactic have got it wrong.
“Given Trump’s penchant to act first and negotiate later, it still seems likely that tariffs will push up inflation this year and that the Federal Reserve will remain on hold as a result,” write analysts at Capital Economics.
Chia notes that Asia is already struggling to recover lost economic growth over the last five years. “Economic conditions vary widely across the region,” he says. “When comparing GDP to its pre-pandemic trajectory, few economies can match the incredible performance of the US.”
Output in the US, Chia notes, “is about where it would have been, if not a little higher, had pre-pandemic growth continued.”
Developed Asian economies — including Japan, South Korea, Taiwan, Singapore and Hong Kong — are about 3% behind as weakness in traditional manufacturing overshadows booming tech exports.
Things could get even worse for Asia. In explaining his trade war plans, Trump said levies on pharmaceuticals and semiconductor chips would start at “25% or higher and will go very substantially higher over the course of a year.”
Trump’s auto-tax threat surely comes with a keep-rivals-on-their-toes dynamic; the White House has rather purposely refused to specify which countries, sectors or parts it will be targeting.
Japan Inc, though, is wasting no time in assessing the collateral damage to come. Tokyo-based research firm MarkLines calculated that Trump’s tariffs may cost the nation’s six major automakers roughly US$21 billion, while making it even harder for those outside the top three – like Mazda and Subaru – to compete globally.
In 2024, imports made up 52% of Mazda’s sales in the US and 44% of Subaru’s versus 17% for Nissan.
The only good news for Xi Jinping’s China is that Trump appears more interested in slamming US allies than geopolitical rivals. After ruining 2025 for Ottawa and Mexico City, Trump is now focused on showing Brussels who’s boss.
Case in point: Trump appearing to side with Russian President Vladimir Putin versus Ukraine, including calling Volodymyr Zelensky a “dictator.”
“Despite Zelensky’s and European leaders’ best efforts to get on Trump’s good side, the US is no longer a reliable or a good-faith partner,” says Ian Bremmer, CEO at Eurasia Group.
If Vice President JD Vance’s speech at the Munich Security Conference denouncing European democracy didn’t make that clear enough, Bremmer says, “US Treasury Secretary Scott Bessent’s attempt to shake down Zelensky for 50% of Ukraine’s present and future mineral wealth revenues — not in exchange for future US support but as payment for past military aid disbursed during the Biden administration — should have.”
Bremmer points out that these terms represent a higher share of Ukrainian GDP than the reparations imposed on Germany by the Versailles Treaty of 1919.
Especially troubling, Bremmer says, is Trump’s effort to force a wartime election on Ukraine. Doing this not to advance American interests but “to further the imperialist agenda” of Putin’s regime “is a stain on the United States and its role in the world,” Bremmer says.
All this puts leaders in Berlin, Paris and elsewhere in the EU in a very challenging position. Add in Trump’s vague tariff threats.
So far this year, Trump’s widening tariff blasts haven’t stopped European stock markets from rising.
“Markets are pricing in a deterioration in US-EU relations, a risk premium tied to Sunday’s German elections, and the potential for higher insurance costs as European nations seek to finance a sharp increase in defense spending,” says researcher Michael Brown at broker Pepperstone.
Analysts at Goldman Sach write that, if enacted, reciprocal tariffs front-run Trump’s most severe trade-war tools. The only bright side may be that “while a reciprocal tariff policy poses risks, it is also possible that it could incrementally reduce trade policy uncertainty once announced,” Goldman analysts argue.
Even before Trump’s tariffs, many of Europe’s biggest carmakers were facing intensifying headwinds, says Michael Dunne, CEO of auto industry advisory ZoZoGo.
“Privately, European automakers tell me they sense real danger – existential danger.”
Last year, Dunne says, Volkswagen delivered 1 million fewer cars in Europe than it did in 2019. “Sales in China are collapsing,” he says. “At home, VW is closing plants in Germany for the first time in modern history.”
Japan also is bracing for the worst. Hopes that Japanese Prime Minister Shigeru Ishiba might develop a “bromance” with Trump are being dashed with each passing tariff threat.
Initially, the ruling Liberal Democratic Party placed its chips on Ishiba pulling off the kind of bond Shinzo Abe struck with Trump 1.0. Though it didn’t earn Japan many deliverables, Tokyo believes Abe shielded Japan from the trade war.
Yet Japan is realizing that even the best-case scenario could be economically devastating. In December, before he took office, Trump talked often about how he had contacts with Chinese leader Xi. “We’ve had communication,” Trump said. He added that, “I had an agreement with President Xi, who I got along with very well.”
The deal concerned illegal drugs like fentanyl that might be coming from China. Yet Ishiba fears that Trump’s real second-term goal is a “grand bargain” trade pact with China that leaves Japan on the outside looking in. So do executives at Toyota, Honda and Nissan.
Cody Acree, an analyst at investment bank Benchmark Co, reckons that the tariffs Trump has unveiled so far would increase the average cost of cars and components from Mexico and Canada by $5,790.
“We believe the auto sector is the most exposed to the risks of increased tariffs,” Acree says, “given its sheer size of trade dollars, the complexity of the intertwined supply and manufacturing channel that has been cultivated over decades, and the sheer number of our companies that participate in support of this key consumer industry.”
The auto sector is even more important to Japan. As Trump broadens his tariffs plans to an industry that’s vital to Japan keeping deflation in the rearview mirror, Tokyo has little choice but to batten down the economic hatches – and game out the worst-case scenarios.
Follow William Pesek on X at @WilliamPesek
