In Asia, It's the Calm Before the Tariff Typhoon
No one knows what April 2 is going to bring, perhaps not even Trump, but for now, Asian equities and Asian economies are responding … by making other plans.
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It’s the calm before the storm out here in Asia today. We’re used to battening down the hatches ahead of a typhoon, and that’s what it feels like on Tuesday. A day after export-heavy markets such as Japan, Taiwan and South Korea sold off heavily, most screens are in the green.
No one knows what April 2 is going to bring in terms of tariffs, perhaps not even U.S. Pres. Donald Trump. He vows to implement reciprocal tariffs that bring U.S. trade taxes to the same levels charged in other countries. But the details on how that works are far from clear.
I don’t think we’ll have clarity April 2, either. U.S. Treasury Sec. Scott Bessent has called out a “dirty 15” jurisdictions, the 15% of nations posting the biggest trade imbalances with the United States. Many analysts had been furiously calculating which countries that captured, and penciling in the impact of higher tariffs there.
Today, you can hear any pieces of paper involved being rapidly crumpled and thrown in the trash. Trump says he is talking about “all countries,” with no roster of specific nations to hit. “I haven’t heard a rumor about 15 countries, 10 or 15,” he said when queried as to the targets of the tariffs.
A rumor? You’d think the self-proclaimed “Tariff Man” would be well aware which countries U.S. tariffs will hit, and why. But it sounds like the details are still being ironed out.
Little Response in China – Again
There was heavy selling in export stocks on Monday. In Tokyo, the broad-market Topix sold down 3.6%, and the blue-chip, exporter-heavy Nikkei 225 dropped 4.1%.
Similarly, in Taiwan, the Taiex fell 4.2%, while the Kospi in South Korea dropped 3.0%.
On the flipside, there was little response in China, with the CSI 300 index down 0.7%, and the Hong Kong market down a similar amount. And India saw the Nifty 50 ease 0.3% lower.
I attempted to explain, in my last column, the unusual response from China stocks so far this year. Investors are cheering not only tech innovations such as DeepSeek’s AI models but also the idea that Chinese companies are being spared the worst. Higher global tariffs from the U.S. government would also mean China, which has already priced in higher duties, is in a relatively good position.
China tops the list of nations posting the biggest trade deficits, from the U.S. point of view, followed by the European Union. Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada, Thailand and India rank next, figures you can find here.
So Asia, accounting for half that roster, has the most trade at risk. China and Canada have both already imposed counter-tariffs on select U.S. goods, with the European Union due to implement higher trade tolls on U.S. goods in mid-April. And we’ll likely get a response from other countries if they’re hit on Wednesday.
Hong Kong: a World Leader on Tariffs
Yet Chinese stocks have persistently surprised this year to the upside, as I’ve noted in my columns. I’m surprised we’re not seeing more impact in India, a country that has some of the highest tariffs among major economies. India charges a weighted mean tariff of 11.5% if you factor in all products. Yet Indian equities have staged a rally since early March, a run that has seen them regain most of their ground lost earlier in 2025. The Nifty 50, for instance, is down just 2.4% year-to-date.
My home base of Hong Kong, by the way, continues to be a duty-free trade zone, leading the world with 0.0% tariffs alongside Singapore and Macau. China itself only has a mean tariff of 3.1%.
The calm before the Wednesday storm sees markets redress some of yesterday’s selling. The biggest advances are in yesterday’s biggest decliners, with South Korea’s Kospi clawing back 1.6%. in Taiwan, the Taiex advanced 2.8%, Asia’s strongest showing. Japan and China stocks moved slightly into profit on the day. Taiwan stocks didn’t even budge in the face of China’s surprise military drills around the self-governing island. China on Tuesday deployed ships, aircraft and artillery in yet another simulated blockade, part of its ongoing harassment of the Taiwan government.
On the U.S. side, a 25% tariff on imported vehicles and auto parts is already guaranteed. The Trump administration has also suggested it will tax imported semiconductors and pharmaceuticals at a higher rate, too. All the uncertainty will likely cause companies to put expansion plans on hold, or scale back some activity until the full implications of tariffs are known, in particular what kind of U.S. trade-tax exemptions various governments can agree.
“The big problem here is that, in addition to the direct impact of these tariffs, there is a high risk that companies will suspend activity as long as the uncertainty over the outcome of tariff policy remains strong,” Nomura’s chief market strategist Naka Matsuzawa writes in a note to clients.
Corporate Sentiment at a Low Ebb
Business sentiment remains poor. For stocks, “risk-off flows” are likely to pick up again, Matsuzawa says. In other words, further selling.
U.S. consumers are going to pay the price of higher tariffs, which are import taxes by any other name. Goldman Sachs has raised the prospect of a U.S. recession from 20% to 35% as a result. And that’s why the S&P 500 posted its worst decline in two years with a 5.8% drop in March. That was the worst showing since the U.S. Federal Reserve began its series of sudden, sharp rate increases in December 2022.
While it is difficult to replace the United States as a trade partner, it’s not impossible to at least substitute part of U.S. trade. It’s faced with a higher-tariff environment that China, Japan and South Korea on Sunday agreed to bolster intra-Asian trade. Or at least to talk about bolstering intra-Asian trade!
The three trade ministers met in Seoul and agreed, in a joint statement, on “speeding up negotiations” for a “free, fair, comprehensive, high-quality and mutually beneficial” free-trade agreement for the three nations. The countries are already part of the Regional Comprehensive Economic Partnership, a 15-nation pact that covers most of the Asia Pacific region.
There will be a market response to Wednesday’s tariffs, and it’s hard for me to see the details as a positive for Asian equities. Today’s calm may lead to selling in export economies later this week. But for now, Asian equities and Asian economies are responding to the disruption to U.S. trade … by making other plans.
At the time of publication, Alex Frew McMillan had no position in any security mentioned.
