With Trump’s return to the White House, the likelihood of US tariffs has increased. Here, we explore three scenarios where the Trump administration imposes stronger trade restrictions on China, the rest of Asia, and the world, including higher blanket tariffs.
In addition to tariffs on China, our current baseline assumes that Vietnam and South Korea will face targeted tariffs, given their large goods trade surpluses with the US.
Higher tariffs on China would significantly impact the entire region, as reduced US demand for Chinese goods would create ripple effects on other Asian producers. Vietnam would likely bear the brunt of these effects outside mainland China, whereas India, with its more domestically focused economy, would remain the least affected.
India, Thailand, and Malaysia are at risk, but political considerations and the need for alternate suppliers until US reshoring has progressed more, leave us sceptical that they will be key targets for higher tariffs.
Sharper currency depreciation would likely delay monetary policy easing in the region in the short run, but rate cuts would eventually be deeper as growth concerns rise.
Over the longer term, US trade reorientation away from Canada, Mexico, and China has the potential to offset some or even all of the damage caused by tariffs.
After Donald Trump’s inauguration, no immediate tariffs were introduced. However, preparations have been made for potential additional duties on trading partners. Under our current baseline scenario, we anticipate a gradual increase in blanket tariffs on Chinese exports, rising from approximately 19% to 30%. Meanwhile, Vietnam, South Korea, and Japan face targeted tariffs, while other Asian economies remain unaffected. Utilizing our Global Economic Model, we explore three alternative scenarios involving stricter trade restrictions, though we assign a relatively low likelihood to these outcomes.
Two main criteria will determine which other Asian economies will become a target of higher US tariffs, in addition to mainland China: the size of the US trade deficit with the country, and the difference between the average tariff between it and the US. In this regard, Vietnam and South Korea appear the most exposed, although we note that the Most Favoured Nation (MFN) tariff may not in all cases correspond to the effectively applied tariff.
Vietnam’s substantial trade surplus—the third largest among all U.S. trading partners after China and Mexico—prompted us to include in our baseline scenario a targeted 10% tariff on autos, metals, and solar cells. This adjustment would increase the average import tariff on Vietnamese goods from 4.6% to 5.4% by 2027.
South Korea’s trade surplus in 2023 positioned it among the top five countries the US regards as a “trade loser.” Under our baseline scenario, we project a 10% targeted tariff on the automotive and base metals sectors.
India, Thailand, and Malaysia are also at risk given their sizeable trade surpluses combined with their high import tariffs on US goods. Nonetheless, tariff hikes are not currently part of our baseline for these countries.
In the case of India, Trump might view it as a key ally in countering Chinese influence, potentially offering it greater flexibility. Furthermore, the cordial personal relationship between Trump and Prime Minister Narendra Modi could result in negotiations where tariff threats serve mainly as a strategic tool to secure concessions on India’s high import duties.
Thailand and Malaysia play a crucial role as major suppliers of electronic products, each contributing approximately 5% to total US electronics imports. As the US continues to distance itself from China’s electronics sector, it is unlikely to jeopardize the supply of certain products by imposing higher tariffs.
Three other plausible tariff scenarios
Given that uncertainty remains high, we present the implications of three alternative tariff scenarios based on Trump’s past comments and the limits of presidential powers to unilaterally impose tariffs (Table 1).
Table 1: Baseline and scenario tariff assumptions
| China | Rest of Asia and world | Implementation | |
| Baseline | 30% blanket tariffs | Targeted tariffs on JAP, KOR, VNM, the EU, CAN, MEX | Phased in over 2026 and 2027 |
| Scenario 1 | 30% blanket tariffs | 10% blanket tariffs + retaliation | From early 2026 |
| Scenario 2 | 60% blanket tariffs | 10% blanket tariffs + retaliation | Phased in over 2026 and 2027 |
| Scenario 3 | 45% blanket tariffs | 15% blanket tariffs + retaliation | All at once in late 2025 |
Source: Oxford Economics
Our three scenarios are simplified compared to our Global Scenario Service’s global ‘trade war’ scenario in that they don’t layer on the Global Trade Analysis Project model to capture potential longer-term shifts in trade patterns.
Second-round effects from higher tariffs on China cause significant damage
Regional trade linkages with China are stronger for many Asian economies than those with the US. In particular, China relies on the rest of Asia for inputs, so lower US demand for Chinese goods has second-round effects on Asian producers.
By country, we find that Vietnam would be the hardest-hit economy under all scenarios due to a combination of factors. The country is heavily integrated in Chinese supply chains, especially for electronics, which are, in turn, China’s biggest export group to the US. In 2023, out of all Vietnamese exports to China, more than a third were intermediate electronic goods such as display modules and chips. Adding to this, with 28% of its total goods exports shipped to the US, the US is Vietnam’s largest export destination. More broadly, Vietnam’s economy is heavily trade reliant – goods exports to the US alone account for more than a quarter of GDP .
South Korea and Taiwan are the next most affected under all scenarios for similar reasons. In Taiwan’s case, its tech-reliant economy will likely suffer severely due to trade links with mainland China, which accounts for around 38% of Taiwan’s total goods exports. For the computer and electronics sector specifically, nearly a quarter is consumed by Chinese industry alone. In Vietnam’s case, a still-sizeable 15% of all electronics output is used by Chinese producers. It also has a strong export reliance on the US, combined with its generally large degree of trade openness.
In South Korea, export reliance on the US is still high, at around 18% of all exports, although this is lower than some of its regional peers. But exports and export prospects are crucial to the performance of the overall economy and in determining business investment, especially in the large electronics and auto sectors.
India seems to be the least vulnerable, as its economy is largely domestically driven, with exports to both the US and China together comprising only about 2.6% of its GDP.
Greater trade reorientation could bring benefits to some, especially longer term
Largely disregarding possible shifts in trade patterns, our analyses suggest the GDP impact will be negative across all Asian economies through at least 2029. However, some of the tariff damage may be offset by the US switching to other import suppliers over the longer term. Incorporating the Global Trade Analysis Project model suggests that if Trump follows through with higher tariffs on the US’s biggest regional trading partners, Canada and Mexico, regional North American trade could halve from its current levels. While greater domestic production may displace some imports, US trade would likely reorient towards Europe, Asia ex China, and other emerging economies.
If Trump follows through with his threats on China similar to scenario 2 (see the Global Scenario Service’s ‘global trade war’ scenario), Thailand and the Philippines could see net benefits thanks to trade rerouting.
Monetary policy easing could face delays, but deeper cuts would ensue
Since markets began pricing in a Trump election victory around September last year, many Asian currencies have notably depreciated – mostly by more than what our tariff scenario 3 would suggest. We note, though, that it is difficult to distinguish between tariffs and other causes – fiscal worries in Indonesia, political instability in South Korea, and FX interventions in India. Risks have therefore tilted in favour of higher policy rates for longer; for instance, the Reserve Bank of India’s upcoming decision stands on a knife-edge. Our strategy team’s simplified calculations on how much depreciation would be needed to offset the full impact of a blanket US tariff on total exports suggest depreciation risks are sizeable. What’s more, weaker currencies may push up the cost of worldwide imports, raising inflationary pressures in the near term.
Although, given China’s primary defence to higher US tariffs will likely be to moderately weaken its currency, this should alleviate some of the price pressures. China supplies 25% of the rest of Asia’s imports, on average. Any upward pressure on inflation due to retaliatory tariffs should remain limited, given the small importance of the US as a source of imports, an average of around 7% of goods imports. The average inflation in Asia may end up the same or even lower in the case of higher tariffs, as suggested by our modelling.
Growth concerns have started coming into greater focus and would rise in the case of more severe trade restrictions, prompting deeper cuts than we expect in our baseline. Policy rates could fall in Taiwan to 0.7% and in South Korea to 1.3% in 2027 under the most extreme tariff scenario, a sizeable 70bps-90bps lower than in our base case. Vietnam’s policy rate could fall as much as 200bps below our current baseline in 2027-2029. Rates would only reverse from 2028 onwards.
