Trump tariff deals bring some clarity for Asia, the world’s biggest manufacturing region

SYDNEY – After months of uncertainty, US President Donald Trump’s latest tariff deals are providing clarity on the broad contours of a new trade landscape for the world’s biggest manufacturing region, Asia. 

Mr Trump

on July 22 announced a deal with Japan that sets tariffs on the nation’s imports at 15 per cent,

including for autos – by far the biggest component of the trade deficit between the countries.

A

separate agreement with the Philippines set a 19 per cent rate,

the same level as Indonesia agreed to and a percentage point below Vietnam’s 20 per cent baseline level, signalling that the bulk of South-east Asia is likely to get a similar rate.

“We live in a new normal where 10 per cent is the new zero and so 15 per cent and 20% doesn’t seem so bad if everyone else got it,” said Trinh Nguyen, senior economist for emerging Asia at Natixis. At a 15 per cent-20 per cent tariff level, it’s still profitable for US companies to import from abroad rather than produce similar goods at home, she said.

Meantime, US Treasury Secretary Scott Bessent said he will meet his Chinese counterparts in Stockholm next week for their third round of talks aimed at extending a tariff truce and widening the discussions.

That suggests a continuing stabilisation in ties between the world’s two largest economies after the US recently eased chip curbs and China resumed rare earths exports.

Throw it all together and a level of predictability is finally emerging after six months of tariff threats that had at one point jacked up tariff levels to 145 per cent on China and near 50 per cent on some smaller Asian exporters.

Investors cheered the moves, with Asian shares rising the most in a month. Japan’s Nikkei index jumped 3.8 per cent, with Toyota Motor soaring nearly 15 per cent to lead the gains. 

Although the latest deals bring some relief, key questions remain.

The Trump administration is still considering a range of sectoral tariffs on goods like semiconductors and pharmaceuticals that will be critical for Asian economies including Singapore, Taiwan and India – countries for which the US has yet to announce tariff rates or deals.

South Korea is also more exposed to sectoral tariffs, even though the Japan deal provides a potential template for new President Lee Jae Myung.

As Mr Trump moves quickly on talks with countries accounting for the bulk of the US trade deficit, he has said he may hit around 150 smaller countries with a blanket rate of between 10 per cent and 15 per cent.

With some certainty on tariff levels now emerging, businesses with complex supply chains across Asia and still reliant on the US consumer can start to game out how they’ll shift operations to minimise the hit to sales. 

Just like the first trade war in 2018, the latest tariff announcements are likely to spur companies to increasingly shift production outside of China. The average tariff rate on the world’s second-largest economy remains the highest in the region, and continued White House pressure on the nation’s technology and trade ambitions means companies may find more stability elsewhere.

Companies and industry groups have been flagging for months that uncertainty is worse than tariffs for investment. The manufacturing sector across the Asean region saw the most notable weakening since August 2021, according to S&P PMI, led by a sharper decrease in new orders, major job cuts and weaker purchasing activity.

The front-loading of shipments from Asia to the US to get ahead of the incoming tariffs is likely to slow once the new rates kick in.

While there is relief that tariff rates for South-east Asian economies and 15 per cent for Japan are lower than some of Mr Trump’s earlier threats, the reality is they are far higher than they were before he took office. 

The latest deals “continue the trend of tariff rates gravitating towards the 15 per cent to 20 per cent range that President Trump recently indicated to be his preferred level for the blanket rate instead of 10 per cent currently,” Barclays analysts including Mr Brian Tan wrote in a note.

That skews the risks to gross domestic product growth forecasts for Asia “to the downside”, they added.

For US consumers who have so far been spared the tariff ticket shock, economists warn there’s likely to be some pass through in the months ahead. Goldman Sachs economists now expect the US baseline “reciprocal” tariff rate will rise from 10 per cent to 15 per cent - an outcome that threatens to fuel inflation and weigh on economic growth.

Federal Reserve chair Jerome Powell has argued he wants to see where tariffs land and how they filter through the economy before cutting interest rates – much to the annoyance of Mr Trump. 

For now, Mr Trump is hailing a win on trade, and investors seem overall relieved. BLOOMBERG