Issue:
February 2025 | Deep Dive
Donald Trump’s threatened trade barriers will harm Asian economies … and the US itself
Are the tariff threats made by incoming U.S. president Donald Trump an admission of American economic failure – tacit acknowledgement that U.S. manufacturers can no longer compete with foreign rivals and need protection to meet domestic demand?
It appears so. If Trump’s use of the tariff weapon turns out to be as aggressive as he has threatened, it would represent a classic case of shooting himself and his country in the foot. His blunderbuss attacks could also injure China and inflict collateral damage on other Asian economies.
Trump’s tactics will raise import costs and inflation (not least in the U.S.), making it harder for central banks to continue easing monetary policy and more costly for governments to fund the fiscal stimulus needed to offset growth slowdowns. Bond markets have sensed this, and yields are rising, hurting funding prospects.
These were the messages from an FCCJ Deep Dive panel discussion held in January on the possible economic impact on Asia of the Trump presidency. The event communicated the sheer complexity of tariff-related issues and the contrast with Trump’s dangerously simplistic approach to dealing with them.
This raises questions about the quality of political leadership in major nations, especially the U.S. Populism has allowed individuals who in some cases are economic ignoramuses to be elevated to the heights of political power.
Those deficiencies of intellect, intelligence or even plain common sense are often accompanied by narrow nationalism and a tendency to lend an ear to advisors who preach a flawed doctrine of “peace through strength”, rather than economic and physical security through good judgement and balanced actions.
One question not being posed in this regard is why Trump (and his predecessor Joe Biden) entertain the idea that the U.S. can promote the idea of security alliances with close allies, while simultaneously threatening some of them with trade tariffs.
Another questions hangs over their belief that tariffs and other protectionist actions can solve America’s growing economic and financial problems, when the evidence shows they plainly cannot. The implication is that successive U.S. leaders pay far too much attention to their security advisors and not enough to their economic experts.
The U.S. consumes more than it produces and has a strong appetite for capital and consumer goods that its own manufacturers are unable to produce at competitive prices. Hence high U.S. imports relative to exports and a perennial trade deficit.
Imposing tariffs on imported manufactured goods is one way of dealing with the problem of declining competitiveness and trade deficits. But it is not the kind of lasting solution that, for example, the European Union is seeking. The EU, by contrast, wants to raise its own competitiveness, thereby reducing external demand and increasing export potential.
The aggressive tariff steps Trump is threatening to take seem doomed to failure, as Asian Development Bank chief economist Albert Park implied at the panel discussion.
But this does not mean that Trump is bluffing. As fellow economist Richard Katz noted, Trump is driven by extreme nationalism above all else.
One thing seems certain – that Trump has not studied economic history. As Chief Global Strategist at Nikko Asset Management Naomi Fink observed, U.S. tariffs in the 1930s triggered retaliation from trade partners, destroyed more jobs than they protected and amounted to an “own goal” for America and the world.
Despite the effort being put into analysing the likely impact of Trump 2.0 on Asia and other regions, the outcome is clouded in deep uncertainty. At what level and when will the tariffs be imposed, and will Trump ride legally roughshod over nations with which the US has free trade agreements and impose tariffs on them anyway?
There does seem to be some agreement that full implementation will not happen until late this year. But there is less consensus on the ADB’s assertion that world GDP growth will be slightly dented [under Trump] by a cumulative 0.5 percentage points over the next four years.
Among major economies, China faces the largest loss, according to Park, but even there, cumulative growth will decline by only 1.2 percentage points between 2025 and 2028 – or 0.3 percentage points a year. The U.S. will suffer the second largest loss, with growth lower in the period by a cumulative 0.7 percentage points.
Major uncertainties cloud the possible impact tariffs, or even the threat of them, will have on business and investment confidence, and what will be the pass-through impact on Asian and other economies from what economists term their “backward linkages” to the U.S. and Chinese economies via supply chains.
China has reduced its reliance on the U.S. market since Trump’s first term in office, when he also imposed tariffs, but it has increased its reliance on exports to Southeast Asia, which in turn relies more heavily on China to absorb the region’s exports of components used in consumer goods shipped to the U.S.
The trade map has become complex, and those apparently unable to comprehend this fact are global leaders such as Trump. Asian nations would be wise to avoid responding with counter tariffs on imports from the U.S. That would be a case of the blind leading the blind into another Great Depression.
Only countries such as China, South Korea or Japan – all significant buyers from the U.S. – can hope to exert leverage through import tariffs. But that would be unlikely to wean Trump off his addiction to tariffs. Asian pragmatism is likely to prevail, however, until such time as the U.S. realises the consequences of its own short-sighted actions.
By the same token, Asian nations are unlikely to devalue their currencies to offset the impact of U.S. import tariffs. The inflationary impact of tariffs across a broad front in the U.S. will have the same effect by pushing up the dollar against Asian currencies, economist Jesper Koll told the Deep Dive event.
Anthony Rowley is a columnist and contributor for the South China Morning Post.
