Tariffs drag Asia growth outlook to weakest since COVID

US President Donald Trump’s global tariffs would cut Asia’s economic growth to the weakest since the COVID-19 pandemic, according to a regional research group.

If America’s so-called reciprocal levies are implemented, growth across Asia would slow to 3.8% this year and 3.4% next year, according to the ASEAN+3 Macroeconomic Research Office. The 2025 estimate includes Trump’s “Liberation Day” charges on all nations that he subsequently paused, but not the recently announced temporary exemption for certain products including smartphones and electronics.

That forecast compares to a 4.2% baseline without tariffs and would mark the slowest pace of growth since it slumped to 3.3% in 2022.

While some countries may be hit harder given how much they rely on exports to the US — such as Vietnam and Cambodia — the region can mitigate the impact by easing monetary policy and boosting fiscal spending, according to the Singapore-based group.

“They’ll take policy responses to mitigate it,” said AMRO chief economist Hoe Ee Khor. “The region is pretty resilient because they’ve accumulated reserves over the years and are more flexible in terms of the exchange rate,” he said, adding that inflation is tame, leaving space for central banks to cut policy rates.

Asia is set to be the hardest hit by Trump’s protectionist push, given the escalating charges on China and how integrated supply chains are across the region. Officials from Vietnam to Japan have been seeking exemptions and promising concessions across meetings with counterparts in the US.

Some central banks have already started cutting interest rates, flagging risks to the growth outlook, including the Reserve Bank of India last week, where members signaled additional easing in coming months.

Meanwhile, the 145% levies announced this year on China and retaliatory duties on the US mean trade is set to plummet between the two nations.

That impact is likewise “manageable” for China since the nation’s share of exports to the US makes up a shrinking share of domestic GDP, according to AMRO. The bigger risk, meanwhile— that the two economies will fully decouple — isn’t likely, Mr. Khor said. “Decoupling is basically all imports and exports” down to zero, he said. “That’s an extreme scenario that won’t happen.”

If implemented, US tariffs on Asia would rise to an average 26% excluding China, according to AMRO. About 15% of the region’s total exports currently head to the US, comprising about 4% of GDP. — Bloomberg