logo
Trump tariff deals bring some clarity for Asia, the world's manufacturing base

Trump tariff deals bring some clarity for Asia, the world's manufacturing base

Business Times3 days ago
[HONG KONG] 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.
On Tuesday (Jul 22), he 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 and a percentage point below Vietnam's 20 per cent baseline level, signaling 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 per cent doesn't seem so bad if everyone else got it,' said Trinh Nguyen, senior economist for emerging Asia at Natixis. 'At a 15-20 per cent tariff level, it's still profitable for US companies to import from abroad rather than produce similar goods at home, she said.
Meanwhile, US Treasury Secretary Scott Bessent said he will meet his Chinese counterparts in Stockholm next week for a 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.
'We are getting along with China very well,' Trump told reporters on Tuesday. 'We have a very good relationship.'
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
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 and contracts for the S&P 500 up 0.2 per cent. The Nikkei-225 index in Japan jumped 3.2 per cent, with Toyota Motor and other carmakers leading the gains.
'What's been interesting to me is that equity markets still have been fairly rosy about the changes,' said the Asian Development Bank's chief economist Albert Park. 'I'm not sure they have priced in fully all of the effects that are likely to occur from the disruption of higher tariff rates.'
Back in April, Trump hit the pause button on the steepest levies after a rare combination of weakening US stocks, bonds and the dollar showed investors were unnerved by his protectionist salvos. That bought time for policymakers from Tokyo, Manila and across the globe to negotiate more palatable deals.
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 Taiwan and India – both of which have yet to announce tariff agreements with the US.
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 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 of the US consumer can start to game out how they will shift operations to minimize 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 South-east Asian 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 levies will likely 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 Trump's earlier threats, the reality is that they are far higher than they were before he took office in January.
The latest deals 'continue the trend of tariff rates gravitating towards the 15-20% range that Trump recently indicated to be his preferred level for the blanket rate instead of 10% currently,' Barclays analysts including Brian Tan wrote in a note. That skews risks to GDP growth forecasts for Asia 'to the downside', they wrote.
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.
US Federal Reserve chairman 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 Trump.
For now, Trump is hailing a win on trade, and investors seem overall relieved.
'I just signed the largest trade deal in history – I think maybe the largest deal in history – with Japan,' Trump said at an event at the White House on Tuesday after announcing the deal on social media. 'It's a great deal for everybody.' BLOOMBERG
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

White House seeks fines from other universities after Columbia deal
White House seeks fines from other universities after Columbia deal

Straits Times

timean hour ago

  • Straits Times

White House seeks fines from other universities after Columbia deal

Find out what's new on ST website and app. Columbia University disciplined more than 70 student protesters who occupied a campus library in May. WASHINGTON - The White House is seeking fines from several universities it says failed to stop antisemitism on campus, including Harvard University , in exchange for restoring federal funding, a Trump administration official said on July 25. The administration is in talks with several universities, including Cornell, Duke, Northwestern and Brown, the source said, confirming a report in the Wall Street Journal. The official, speaking on condition of anonymity, said the administration is close to striking deals with Northwestern and Brown and potentially Cornell. A deal with Harvard, the country's oldest and richest university, is a key target for the White House, the official added. A spokesperson for Cornell declined to comment. Other universities did not immediately respond to requests for comment. Mr Trump and his team have undertaken a broad campaign to leverage federal funding to force change at US universities, which the Republican president says are gripped by antisemitic and 'radical left' ideologies. Mr Trump has targeted several universities since returning to office in January over the pro-Palestinian student protest movement that roiled college campuses last year. Columbia University said on July 23 it will pay more than US$200 million to the US government in a settlement with the administration to resolve federal probes and have most of its suspended federal funding restored. The Trump administration has welcomed the Columbia deal, with officials believing the university set the standard on how to reach an agreement, the official said. Harvard has taken a different approach, suing the federal government in a bid to get suspended federal grants restored. REUTERS

Trump administration plans changes to skilled worker visas and citizenship tests
Trump administration plans changes to skilled worker visas and citizenship tests

Straits Times

timean hour ago

  • Straits Times

Trump administration plans changes to skilled worker visas and citizenship tests

The H-1B visa program for foreign workers has been the subject of a fierce debate within the Republican Party. WASHINGTON – The Trump administration is planning to change the visa system for skilled foreign workers, a program at the center of a dispute between immigration hard-liners and tech industry leaders, said the new director of US Citizenship and Immigration Services (USCIS). In an interview with The New York Times, Mr Joseph Edlow, the director of USCIS, also said the test to become a US citizen was too easy and should change. 'It's very easy to kind of memorise the answers. I don't think we're really comporting with the spirit of the law,' Mr Edlow said July 24. He illuminated how the agency at the heart of the country's immigration system would operate in President Donald Trump's second term, at a moment when the president has ordered a sweeping crackdown on immigration and mass deportations. The H-1B visa program for foreign workers has been the subject of a fierce debate within the Republican Party. Mr Edlow said it should favour companies that plan to pay foreign workers higher wages. The proposed changes to the system could help alleviate criticism from those in the right wing of the Republican Party who say the program brings in workers who are willing to accept lower salaries than American workers. This week, Vice-President JD Vance criticised companies who lay off their own employees and then hire foreign workers. But some of Mr Trump's most prominent backers in the tech industry have said they rely on the program because they can't find enough qualified American workers. 'I really do think that the way H-1B needs to be used, and this is one of my favorite phrases, is to, along with a lot of other parts of immigration, supplement, not supplant, US economy and US businesses and US workers,' Mr Edlow said. Mr Doug Rand, a former Biden administration official, said changing the H1-B process to favour higher-wage earners was misguided. 'Like it or not, the H-1B program is the main way that US companies can hire the best and brightest international graduates of US universities, and Congress never allowed DHS to put its thumb on the scale based on salary,' he said. NYTIMES

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store