Emerging Asian countries are squeezed by Trump’s tariffs and China’s retaliation

Asian developing countries are under pressure by Donald Trump’s tariff blitz and Chinese retaliation after years of benefiting as a low-cost hub for US exports.

Emerging stock markets, primarily part of the ASEAN group in Southeast Asia, are one of the biggest losers from the disruption created by the US President’s trade policy.

Stock markets in countries such as Taiwan, Thailand and Vietnam have turned red this year despite rallying on Thursday following Trump’s 90-day tariff deferral.

The country known as China and one country as the Western manufacturer, snabbed Beijing, establishing manufacturing bases of these countries, and is now hostage at the escalation of a trade war between the two largest economies in the world.

“This global trade war will make businesses want to suspend new investments in light of all uncertainties,” warned Brian Lee, an economist with the region’s Maybank Investment Bank Group.

“In the short term, at least, it will likely slow down the supply chain reconfiguration to ASEAN.”

Taiwan’s main indicator, where textile and electronics exporters shifted factories from China, has fallen by around 18% per year, despite a nearly 10% surge on Thursday.

Thai stock markets followed a similar pattern this year, despite a 5% jump on Thursday, falling 18% on the dollar terms.

Vietnam’s Ho Chi Minh index is down about 9% per year on dollar terms, even after the US rose nearly 8% on Thursday after it suspended 46% tariffs the previous day.

While Trump’s suspension provides immediate relief, the growing trade uncertainty and tension between the main trading partners of ASEAN countries, the United States and China, poses a major challenge.

Economists have warned Trump’s focus on Beijing, which faces at least 125% of US tariffs, leading to dumping cheap Chinese products into Southeast Asia, putting pressure on domestic manufacturing.

Also, wider trade tensions could slow foreign investments that have driven growth in regions that manufacture goods from Apple MacBooks to Nike trainers.

Over the past decade, Vietnam’s stock market has doubled on the dollar-total turn terms as investors bet that factories backed by multinational companies such as Nike and Samsung would increase revenues for the economy’s younger population, officially expected to grow by 8% this year.

At the same time, the boom also led to a diversion of Chinese products such as solar panels through Vietnam to avoid US trade barriers over Beijing from Trump’s first term.

It attracted more and more anger, even before Trump’s reelection. Vietnam has a trade surplus of $123.5 billion with the US, the third largest after China and Mexico.

The so-called commodity transshipment, which has been circumvented through these Asian economies by Beijing’s induction into the US, can still cause problems.

“China’s retaliation actually complicates the (economic) negotiations in Vietnam and elsewhere, which complicates negotiations with us due to concerns about Chinese companies as a backdoor for Vietnam and others to dodge tariffs,” an analyst at the Bank of Japan MUFG said.

However, some investors are either directing towards a US export-independent market or looking for a market where they can trade more within the region.

“Many of these countries have already moved from US exports to more domestic trade models. This trend is pretty early in many countries and only moves forward.”

Countries such as Indonesia have room to cut fees to promote growth in the event the global economy is dark, he added.

Furthermore, many of these countries suffered the worst hit during the 1997/98 Asian financial crisis, stacking up foreign reserves to avoid repeated repetition.

As Indonesian rupiah overturned the last seen levels this week in 1997/98, central banks were able to utilize approximately $155 billion in reserves, or sufficient reserves to cover about seven months of imports to intervene to support the currency.

However, in Hanoi, total foreign exchange reserves account for less than three months of imports. MUFG’s senior currency analyst Michael Wang said Vietnam doesn’t have “unlimited firepower to combat the weakness of Forex.”

At the same time, he added, “the country’s competitiveness will ultimately shine over the medium term.” This includes Vietnam’s relatively inexpensive labor supply and proximity to trade routes.

“The reason China allocates a lot of manufacturing to places like Vietnam is because of costs,” said James Johnston, co-head of Red Wheel emerging and frontier markets.

“The idea of ​​producing iPhones or textiles in the US is extremely difficult to think about, even under the most extreme tariff conditions.”