Asian Markets Shake Off Surprise Trump Tariff Move
With 14 nations receiving letters on trade, there’s uncertainty for recipients, but investors consider the issue pushed back.
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Your tariffs are in the mail.
Or are they?
With U.S. President Donald Trump sending letters to 14 trading partners threatening higher tariffs, we’re back into the flow of contradictory or conflicting statements that leave markets with the thing they’re supposed to fear the most: uncertainty.
The good news: the July 9 deadline has been pushed back to August 1. July 9 marks 90 days since, with markets in freefall, these so-called “reciprocal” U.S. tariffs were first pushed back. Now Trump has pushed the deadline back again, by executive order, so July 9 will pass with a whimper.
But higher tariffs are now due to kick in on August 1. Unless we get another executive order, of course. In the meantime, Trump has sent letters to 14 nations specifying what are often different tariff rates than his original threat.
It’s not clear why he’s picked these 14 nations, which include exporters both major and minor, U.S. allies as well as the brutal military dictatorship that barely functions as a government in Myanmar.
The Detailed List
These are the first target nations he has selected, with the U.S. duty they’ll face, ranked by the size of their economy:
- Japan (25%)
- South Korea (25%)
- Indonesia (32%)
- Thailand (36%)
- Bangladesh (35%)
- Malaysia (25%)
- South Africa (30%)
- Kazakhstan (25%)
- Serbia (35%)
- Myanmar (40%)
- Tunisia (25%)
- Cambodia (36%)
- Bosnia and Herzegovina (30%)
- Laos (40%)
So you’ve got the world’s No. 4 economy (Japan) and the world No. 138 (Laos). The No. 4 in terms of population (Indonesia, 282 million people) and the No. 133 (Bosnia, 3.4 million, even with Herzegovina thrown in).
India and European Union Left Out
We know talks have been taking place with Japan and South Korea, although they’re stalled. But there’s no sign in the letter list of the European Union or India, other trade partners where talks are under way but agreement on any details is proving tough to secure.
Trump’s press secretary stated it was the “president’s prerogative” to select the first wave of countries to receive letters, and “those are the countries he chose.”
Sectors that already face higher U.S. tariffs such as automobiles will continue with that tariff, 25% in the case of cars, a rate that won’t be imposed on top of the national duty. The letters state that if any country retaliates with reciprocal tariffs, the U.S. tariffs will rise by that amount.
Asian Shares Dip on the Rumor
East Asian markets dipped on Monday ahead of any specifics, with the broad-market Topix in Japan shifting 0.6% lower, and Taiwan down 0.5%, with Australia (down 0.2%) and Hong Kong (down 0.1%) narrowly in the red.
Only this year’s standout performers, South Korean stocks, continued their upward run, the Kospi closing 0.2% higher. Southeast Asian stocks also generally gained after Vietnam struck a U.S. trade pact, an outcome I analyzed in my last column. The Ho Chi Minh index ended up 1.1% on Monday, with Hanoi up 1.5%. The Singapore, Indonesia and Philippines markets all ended Monday 0.5% higher.
We knew something negative would be coming on tariffs. Trump posted on social media late on Sunday that U.S. tariff letters “and/or” deals with “various Countries from around the World” would start being delivered at 12 p.m. on Monday.
But Gain on the News
So, by Tuesday’s Asian trade, I would have expected far greater selling, now that we have the specifics on those 14 nations. But we didn’t get it.
On Tuesday, Tokyo ended up 0.2% for the Topix, with the exporter-heavy Nikkei 225 faring slightly better, up 0.3%. Hong Kong stocks had a strong day, up 1.1%. The Kospi in Korea outdid that, up 1.8%. It was green virtually across the screen.
Exporters must factor in new math on their goods. But stock-market movements suggest that, yet again, the tariffs mentioned in Monday’s letters may just be the starting point for negotiations.
Japan, Malaysia Rate Moves Higher
Tokyo’s stock price gain didn’t reflect the fact that Japan’s 25% import duty is 1 percentage point higher than the original duty threatened in April. Malaysia’s rate is also up 1 percentage point from 24%.
The levies mentioned in Monday’s letters are the same as specified in April for South Korea, Indonesia, Thailand and South Africa. But some countries would be better off — if these numbers stick.
The 35% rate for Bangladesh is 2 percentage points lower than in April, and that’s the case for Kazakhstan, too, down from 27% to 25%, as well as Serbia and Tunisia.
Bosnia’s 30% freight is a full 5 percentage points lighter than the 35% threatened in April. Laos, at 40%, would be 8 percentage points better off. And Cambodia, originally facing the second-highest U.S. import duty at 49%, behind only tiny Lesotho’s 50%, is suddenly adapting to a 36% rate.
Markets Desensitized?
We have seen nothing like the share-price response in April, when markets sold off hard. What selling there has been has come in Asian currencies, with the Japanese yen losing 1.3% against the U.S. dollar in the past two days. The Korean won suddenly shifted 1.2% weaker, too, only to recover that lost ground.
We can expect a flurry of trade talks to take place before August 1. As I’ve said before, there aren’t enough U.S. trade negotiators to meet with all the countries that would like to talk trade. Whatever happens, U.S. trade duties will be far higher than before.
The trade “deals” that have been done with the United Kingdom, China and Vietnam are bare-bones frameworks. Vietnam’s 20% tariff rate is better than the numbers stipulated for other Southeast Asian nations, and an improvement from the 46% April rate, but also far worse than the average 2.2% U.S. duty charged last year, before this all began.
Nomura notes that markets appear to be “desensitized” by the political theater of threatening higher tariffs, only to walk them back. Pushing the July 9 deadline back to August 1 has already reinforced the TACO trade (Trump Always Chickens Out).
Asian investors would sell off exporters if they knew for sure these tariffs will hold. But they likely won’t. We’ve got three more weeks of uncertainty through August 1.
