Between a barrage of tariffs, contempt for global institutions and disdain for democratic leaders, Asia’s leaders are at a loss to prepare for what turbulence might come next from the Trump administration.
Last week was a glaring case in point. The US president’s revenge tour saw him double tariffs on China to 20%, turning his back on the NATO alliance and provoking a public clash with Ukrainian President Volodymyr Zelensky. All this just days after previewing a 25% tax on all auto imports.
Tariffs on global carmakers would include Japan and South Korea, historically Washington’s two top allies in Asia. Trump’s burn-it-all-down gambit puts Asia’s developing economies in an ever more precarious place.
The last few weeks saw central banks in Indonesia, South Korea and Thailand cut interest rates. Yet odds are the tariff barrage coming from Washington has only just begun. And it could quickly escalate in ways Asian policymakers and business leaders haven’t even begun to game out.
At the moment, Trump is busy going after the European Union. Last week, he chided the EU, complaining it “was formed to screw the United States.” As such, he said US tariffs “will be on cars and all other things.”
The reason, Trump said, “they’ve really taken advantage of us in a different way. They don’t accept our cars. They don’t accept essentially our farm products, they use all sorts of reasons why not.”
But Trump’s trade war is largely about China, a target to which his focus is sure to return early and often. That includes investigating Chinese artificial intelligence companies and supersizing predecessor Joe Biden’s curbs on exporting high-end semiconductors and chip-making equipment to the mainland. Trump is also strong-arming US allies to slap draconian curbs on Chinese chips.
All this has developing Asia in a mini-panic. “To say that President Trump has hit the ground running in his second term would be an understatement,” says economist Priyanka Kishore, founder of consultancy Asia Decoded.
“With an experienced and committed team in place, he has moved fast on his campaign pledges. A record number of executive orders have been signed just in the first 30 days,” Kishore said.
Accordingly, Asia is preparing for the worst. Along with cutting rates, governments are battening down the hatches to raise defenses against Trumpian turmoil.
That includes ordering up emergency fiscal stimulus to safeguard economic growth, adding to foreign exchange reserve stockpiles and putting up macro-prudential barriers to withstand the shockwaves to come.
Markets everywhere are finding themselves in harm’s way. Stocks in particular are “likely to be volatile” until Trump’s policies point toward being more growth-focused, says Jason Draho, head of asset allocation for the Americas at UBS Global Wealth Management.
Analysts at Goldman Sachs warn in a note that “tariff increases will also raise production costs for some domestic producers and will likely prompt foreign retaliation against some US exports, both of which could hurt domestic production.”
Part of the problem is the vagueness of Trump’s threats. One day he threatens big levies on different countries and sectors, only to walk it back the next.
“Instead of clearing up the uncertainty about the direction of US economic policy, Trump’s victory in last November’s presidential election has only magnified it,” analysts at Capital Economics wrote in a note.
Trump is doing it, they add, “with threats of massive punitive tariffs and the potential upending of traditional geopolitical alliances plunging the rest of the world into a state of heightened uncertainty too. Uncertainty could end up weighing on global investment and consumer spending for an extended period, particularly if Trump repeatedly pushes back his tariff deadlines.”
It also seems only a matter of time before Trump’s exploits damage the dollar in irreparable ways and cause financial shockwaves that raise risks Asia hasn’t yet contemplated. For all the region’s attempts to wean itself off the US currency, Asia remains far too dollar-centric for comfort.
That’s an outsized vulnerability as Trump’s policies put the reserve monetary unit at grave risk. Trump, for example, has threatened to end the autonomy that gives the Federal Reserve, the protector of the dollar, such global power and influence.
Trump has also mused at times about defaulting on US government debt as a means to settle scores with rivals. Or, perhaps, as a ploy to allow the US to renounce certain debts.
Plans for massive tax cuts, meanwhile, may run afoul of the globe’s credit rating companies. Already, the US debt is zooming toward US$37 trillion. And at a moment when Trump and his de-facto presidential partner Elon Musk are angling to gut the Internal Revenue Service and other key financial agencies.
News that Musk and his associates were given access to highly sensitive US Treasury Department data, too, has raised alarm bells far and wide.
In a New York Times op-ed last month, Robert Rubin, Lawrence Summers, Timothy Geithner, Jacob Lew and Janet Yellen warned that “no Treasury secretary in his or her first weeks in office should be put in the position where it is necessary to reassure the nation and the world of the integrity of our payments system or our commitment to make good on our financial obligations.”
It follows that “any hint of the selective suspension of congressionally authorized payments will be a breach of trust and ultimately, a form of default,” they argued. “And our credibility, once lost, will prove difficult to regain.”
That’s not to say Asian governments aren’t overdoing efforts to protect their economies from Trump’s trade wars. Or that China’s strategy to defeat deflation isn’t backfiring on many nations, particularly in Southeast Asia.
A direct result of Trump’s 2017-2021 presidency and the current one is that China pivoted from exporting to the West to Global South nations. And at bargain-basement prices as the overcapacity pushing Chinese consumer prices lower spills over into developing Asia.
Since 2021, for example, the number of Chinese exports going to the 10 Association of Southeast Asian Nations (ASEAN) members has increased by roughly 25%. And at prices undercutting Southeast Asia’s all-important export industries at the worst possible moment.
At the same time, China’s trade surplus with ASEAN had doubled since Trump 1.0’s tariffs. It’s a reminder that Asia’s hopes that China would become the growth engine the US was pre-Trump era aren’t going to plan.
Last year, China’s net exports made up the largest share of world gross domestic product (GDP) since 1997 — roughly one-third. This bookmark is worth considering as developing Asia worries Trump’s tariffs, coupled with Chinese deflation, might restore a 1997-like vibe to Asian markets.
Now, 28 years later, economies like Indonesia, Malaysia, the Philippines and Thailand face the specter of China-driven de-industrialization in ways few saw coming. The avalanche of Chinese goods overwhelming smaller economies at an epic scale is coinciding with the Trump 2.0 tariff barrage to come.
Yet the answer isn’t imposing trade curbs on China’s dumping, which would merely treat the symptoms of developing Asia’s challenges, not the problems themselves.
These misguided reactions toward China include imposing anti-dumping duties, going after e-commerce platforms like Temu, raising a barrage of new customs curbs on imports or unleashing levies on everything from textiles to iron.
Across Asia, non-tariff barriers are highest in China, India, Indonesia, the Philippines and Thailand. South Korea also raises eyebrows in Washington for regulations and testing standards that could be seen as barriers to entry.
“Broadening the criterion for imposing the reciprocal tax not only makes the process more complex and less transparent, it also increases the likelihood of the reciprocal tax being imposed across a broader swath of emerging and developed Asian economies,” says Sonal Varma, an analyst at Nomura Holdings.
If only used as a short-term defense, maybe. But it’s far more important that developing Asia accelerate efforts to move upmarket into higher-value-added industries, particularly in services, to wean economies off of cheap exports.
That’s the best way to increase economies’ share of tech “uniform” startups that create new good-paying jobs and wealth, and disrupt rigid economic systems.
Developed Asia has plenty of problems of its own. Take Japan, which is directly in the collateral damage zone as slowing Chinese growth and Trump’s trade war heats up.
“A disappointing run of data so far this year suggests 2025 will be difficult for Japan’s economy,” says Stefan Angrick, head Japan economist at Moody’s Analytics.
“Manufacturing and exports have struggled against a deteriorating trade outlook, production snags, weak external demand, and increased external competition.”
Angrick adds that “sticky inflation is pushing real wage growth into the distance, delaying a meaningful recovery in consumption.” Uncertainty over fiscal and monetary policy, meanwhile, is an added headwind.
“With external and domestic demand unlikely to offer much support in the near term, the outlook for 2025 is deteriorating fast,” Angrick notes.
The fallout for the rest of Asia may be greater. Many economists worry the broader damage from the trade war will be far more devastating than the Trump 2.0 White House admits.
“Macroeconomics is the kryptonite of Trump’s reciprocal tariff plan,” says Yale University’s Stephen Roach. “The proposal is laced with a disdain for facts, ignorance of history and blames others for problems of America’s own making.”
As such, notes Chang Shu, an economist for Bloomberg Economics, “Trump may be pressing his luck.” The restraint Chinese leader Xi Jinping has exercised so far on retaliation steps, she says, “could shift to a more strident retaliatory stance — and a much more damaging trade war.”
China, of course, has made it clear that Trump’s trade curbs won’t go unchallenged. Possible retaliatory measures include China buying significantly fewer US agriculture and food products.
Indeed, Xi may use the annual National People’s Congress, taking place in Beijing this week, to hit back harder at Team Trump and in doing so put the rest of Asia more in harm’s way.
Follow William Pesek on X at @WilliamPesek
