BANGKOK (AP) — The escalating trade war under U.S. President Donald Trump’s second term poses a significant challenge to Asian economies, both large and small. As the world’s most populous region, Asia has long been a key driver of global economic growth, largely fueled by export manufacturing and free trade. However, Trump’s aggressive tariff policies are disrupting longstanding trade agreements, often secured through painstaking political negotiations.
The White House has stated that tariff hikes will be based on various factors, including U.S. trade deficits, tax structures, exchange rates, government subsidies, and non-tariff trade barriers. In addition to new tariffs set to be announced on Wednesday’s "Liberation Day," as Trump calls it, a 25% tariff on auto and auto part imports is scheduled to take effect on Thursday.
Trump has also imposed levies on China, Canada, and Mexico, expanded tariffs on steel and aluminum, and sanctioned countries that import oil from Venezuela. Future import taxes are planned for pharmaceuticals, lumber, copper, and computer chips.
The Economic Fallout in Asia
Rising costs have already pushed some manufacturers away from China to South and Southeast Asia, Africa, and Latin America. However, given the uncertainty surrounding Trump’s "reciprocal" tariffs, many companies are adopting a wait-and-see approach.
“There’s no script for how reciprocal tariffs get priced, and uncertainty is the only constant,” said Stephen Innes of SPI Asset Management.
Here’s a look at how major Asian economies might be affected:
China
Despite reduced trade activity since the initial trade war in Trump’s first term, the U.S. trade deficit with China hit $295.4 billion last year. China, the world’s second-largest economy, relies heavily on exports to offset weak domestic demand.
With the Chinese government prioritizing auto and battery exports, steep tariffs—27.5% on auto exports and 102.5% on electric vehicles—have effectively closed the U.S. market to Chinese automakers. Meanwhile, China remains the second-largest supplier of auto parts to the U.S.
Trump’s tariff hikes have prompted China to retaliate by raising import duties, particularly on U.S. agricultural products. Beijing has also expanded export controls on critical minerals essential to high-tech electronics. Additionally, U.S. liquefied natural gas (LNG) exports to China have declined following a newly imposed 15% tariff by Beijing.
Japan
Japanese Prime Minister Shigeru Ishiba announced last-ditch diplomatic efforts to exempt Japan from U.S. auto tariffs. The U.S. accounts for roughly 20% of Japan’s exports, including 1.5 million passenger cars annually.
Despite Japanese automakers such as Toyota, Honda, and Nissan maintaining factories in the U.S. and Mexico, the auto industry remains a vital sector domestically, employing nearly 5.6 million people. Other Japanese exports, including electronics, machinery, chemicals, and steel, could also face new trade barriers.
A recent Bank of Japan survey revealed declining business sentiment among large manufacturers, marking the first downturn in a year. Tokyo’s Nikkei 225 index has dropped over 10% in three months, while Toyota shares have plummeted by 27%.
Taiwan
Taiwan’s economy is highly export-driven, with 60% of its GDP tied to trade. The self-governed island maintained a $74 billion trade surplus with the U.S. last year. Key exports include computer chips, office machines, and consumer electronics.
Taiwan Semiconductor Manufacturing Co. (TSMC) is ramping up investments in the U.S., particularly in Arizona, buoyed by American incentives. In early March, TSMC CEO C.C. Wei announced a $100 billion investment plan for U.S. expansion.
South Korea
South Korea reported a $66 billion trade surplus with the U.S. last year, with automobiles, electronics, and semiconductors being major contributors. To mitigate trade tensions, the country may consider increasing investments in U.S.-based auto, steel, and semiconductor manufacturing. Some analysts suggest Seoul may also negotiate amendments to the Korea-U.S. Free Trade Agreement to foster balanced trade.
South Korea, a major LNG importer, could also opt to purchase more American natural gas as part of broader trade adjustments, according to RaboBank analysts.
Vietnam
Vietnam has followed the export-driven development models of Japan and China, positioning itself as a key manufacturing hub. It recorded a $123.5 billion trade surplus with the U.S. last year, ranking third behind Mexico and China. Vietnam’s top exports include machinery, textiles, and footwear.
A 14% surge in exports helped Vietnam achieve a robust 7.1% GDP growth rate last year. To appease Trump and address its trade surplus, Vietnam has pledged to lower tariffs on LNG, autos, ethanol, and some agricultural goods. Additionally, the country has approved a five-year trial of Elon Musk’s Starlink satellite internet service.
India
India, now the world’s most populous country, recorded a $46 billion trade surplus with the U.S. in 2024. Its primary exports to America include pharmaceuticals, chemicals, and precious gems such as diamonds and pearls.
While exports constitute less than a quarter of India’s GDP, they play a critical role in employment generation. The U.S. remains India’s largest overseas market, making it vulnerable to any sweeping tariff increases under Trump’s protectionist agenda.
