Asian economies are currently navigating a complex landscape as the United States, under President Trump's administration, escalates its tariff strategies. Recently, China faced an additional 10% blanket tariff, while Canada and Mexico received a temporary reprieve. In response to these developments, New Delhi has moved to reduce tariffs on key products, including motorcycles, electronic goods, critical minerals, and lithium-ion batteries. Meanwhile, Tokyo maintains relatively low tariffs of around 3.7% for countries with Most Favored Nation (MFN) status, positioning itself strategically amidst ongoing trade tensions.
India's tariff policies position it as particularly vulnerable to "reciprocal" tariffs due to its higher duties on U.S. imports. With a simple average tariff rate of 9.4% on MFN partners, India stands out in the region alongside China's restrained yet strategic tit-for-tat measures. Vietnam emerges as a significant beneficiary of the trade barriers imposed on China, reaping substantial gains from diverted trade flows.
According to the World Trade Organization (WTO), many Asian economies apply higher average tariffs on imports compared to the United States. India leads this trend with a 17% simple average rate on countries with MFN status, significantly higher than the U.S. rate of 3.3%. This trade dynamic is further highlighted by China's trade surplus with the U.S., which topped $295.4 billion last year, followed by Vietnam's $123.5 billion surplus.
The U.S. enjoys MFN status with most major economies, with Russia as a notable exception. Japan has agreed to import more natural gas from the U.S. and expressed interest in a project to deliver liquefied natural gas (LNG) through a pipeline from northern Alaska. However, Vietnam may face doubled tariffs up to 8% if the U.S. enforces "full tariff reciprocity."
"Just because these economies have dodged tariffs for now, it doesn't mean they can breathe easy," remarked Stefan Angrick, senior economist at Moody's Analytics. He emphasized that "Washington's mood could shift and tariffs could still be imposed later."
In an effort to mitigate potential impacts from U.S. tariff policies, New Delhi announced a reduction in tariffs on various products. This move signals India's intention to present itself as open and cooperative in international trade relations.
"We are signaling that India is not a tariff king," stated Finance Secretary Tuhin Kanta Pandey.
Tokyo's strategy involves maintaining relatively low tariffs on countries with MFN status, a move that may shield it from some of the harsher effects of U.S. policies targeting countries like Canada, Mexico, and China.
"While Japan may not avoid all the effects of future US tariff policies, Tokyo may avoid the targeted treatment seen with countries like Canada, Mexico, and China," commented James Brady, vice president of Teneo. He further added that "it may even hope for more lenient trade treatment than other major economies, as it appears to enjoy the status of one of Trump's most favored nations."
China's approach has been characterized by a more measured and strategic response to U.S. tariffs.
"China is opting for a more diversified response," noted Tommy Xie, head of Asia macro research at OCBC Bank, adding that they are "leaving room for further negotiations."
Vietnam's position as a major beneficiary of the trade barriers imposed on China is evident in its growing trade surplus with the U.S. While this provides short-term gains, potential policy changes threaten to alter this dynamic.
"It is likely that U.S. import tariffs will rise for most emerging Asian economies," predicted a team of analysts at Barclays.
Japan's commitment to importing more natural gas from the U.S. and its interest in an LNG pipeline project from northern Alaska highlights its proactive approach in maintaining favorable trade relations with Washington.