May 28, 2025 • 26 mins
A big shift in regional trade is underway following US President Donald Trump's announcement – and temporary pause – of the so called "Liberation Day" tariffs. Exports from Southeast Asia are surging, as companies around the world frontload and reroute shipments of parts and final goods such as toys and smartphones.
Which countries are benefiting the most from this demand and the intensifying strategy of "China+1", how long will these high export levels be maintained, and what are the risks for consumers and companies? Katia Dmitrieva speaks with Robert Subbaraman, head of global macro research at Nomura, about the latest on the trade front.
Read our story here: https://www.bloomberg.com/news/articles/2025-05-21/china-us-trade-soars-as-exporters-race-to-hit-trade-truce-window?utm_source=website&utm_medium=share&utm_campaign=copy
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Speaker 1 (00:00):
President Donald Trump's trade war is upending supply chains and
business yet again. After announcing sky high global tariffs in April,
he soon put them on hold. That back and forth
caused whiplash across Asia the world's factory floor companies canceled orders,
then rapidly reopened them.
Speaker 2 (00:20):
Ships were suddenly in demand.
Speaker 1 (00:21):
With freight prices up the most all year, and bookings
on those ships also soared, particularly the important China to
US route. You're listening to Asia Centric from Bloomberg Intelligence.
I'm Kante Dimitrieva here in Hong Kong, and today we're
looking at what the trade data tells us about the
fallout so far. How is this rapid fire change going
(00:45):
to impact economic growth, currencies and investment? And are there
any winners? Robert Suberaman is here to help us answer that.
He's head of Global macro Research at NIMURA based in Singapore. Rob.
Speaker 3 (01:01):
Welcome, Thank you, Katia. Great to be here.
Speaker 1 (01:04):
Well, Rob, maybe we can start with what we do know.
So Trump has announced tariffs, he paused them to negotiate
bi lateral deals. What have you seen since then across
the world and primarily here when it comes to sort
of company reaction and trade flows.
Speaker 3 (01:19):
Well, I can tell you, Katya on the trade flows.
My team's been analyzing the high frequency data plus details,
very detailed look at exports by product and by destination,
and i'd say, in a word, it's very complicated. Now
we have a mix of front loading of exports in
(01:39):
some countries, we have trade diversion happening. Instead of directly
exports from China to the US, they're going to third countries.
And we're also very much on the lookout for payback
from the front loading of exports. So it's a real mix,
you know, in terms of front loading, i'd say in
Asian the data we've being getting for April shows very
(02:02):
strong export growth in the well over double digit, over
twenty percent in Singapore, Taiwan, and we're seeing in particular
very strong export growth to the US. Malaysia's exports to
the US forty five percent in April, Singapore's forty eight percent,
of Vietnam's thirty four percent growth. So there is some
(02:24):
science of trade diversion in our view, because when we
looked at China's exports in April, they were down twenty
one percent to the US but up twenty one percent
to Asian, so some trade diversion. But the other interesting
thing is US China tariff de escalation that's happened, and
(02:44):
when we look at high frequency data, what we're seeing
now is a very strong rebound in container vessels departing
from China to the US, but particularly in orders for shipping.
If we're looking at the bookings of ships from China
to the US, they were up over one hundred percent
(03:07):
in the week to eleven May. So it's looking like
maybe we're going to be seeing a rebound in Chinese
exports to the US in the coming months because there's
this window of opportunity now while the tariffs have come
down to step up those trade orders before. Who knows
what's going to happen after the ninety day grace period expires.
Speaker 1 (03:30):
And you said that there's some signs that China may
be sending goods to Southeast Asian neighbors, and then is
the idea that they're going to the US from there.
Speaker 3 (03:40):
You can't be certain at this stage because you don't
have as much granular detail. But what we are seeing
is in April, this is before the tariff de escalation,
China's exports to the US were down twenty one percent,
but China's exports to Asian were up twenty one percent,
and since then seen in the Asian data like Malaysia, Singapore,
(04:03):
and Vietnam very strong exports to the US. So we
can't be definitive, but there is some signs in this
pattern of trade that maybe trade diversion is still going on.
The other interesting thing cut here up is on the electronics.
So Asia is a very big exporter of electronics, and
(04:25):
we've seen very strong exports of electronics by Singapore, Malaysia, Taiwan,
a lot of it high end semiconductors. And we do
wonder whether this is in anticipation of maybe sexual tariffs
on semiconductors and maybe more broadly tech products, that Asia,
(04:49):
which is the hub in the world, the factory for
making chips and electronic products, whether they're trying to get
race ahead of potential sexual tariffs.
Speaker 1 (04:59):
Yeah, because if you're in americ and Company, I mean,
at this point, you're probably thinking, we don't care where
we have to put it, we don't care how much
of it we have. We just need to get it
here before tariffs come in exactly.
Speaker 3 (05:11):
And you know, the idea is to maybe build up
your inventory with cheaper electronic products or other products, because
who knows what's going to happen once, you know, July ninth,
when the reciprocal tariff sixpire, or August twelve, after the
US China tariff truce expires. I think generally there is
quite a bit of signs that there's been front loading
(05:33):
and trade diversion at this stage. The big question I
think we have in the coming months is, you know,
inevitably when there's front loading, there will be payback, and
we aren't seeing much sign of the payback yet. Maybe
it's too early. Maybe the only sign where maybe we're
starting to see it is Korea's exports for the first
(05:55):
twenty days of May we're down two point four percent,
and Career has the most timely exports in Asia and
they were down, So you know, maybe that's a sign.
As we get more May data and June data, we'll
start to see the other side of this. But as
I said, because of now there's truce between the US
and China, China is wrapping up its exports again, so
(06:18):
it's very complicated at this stage. I'd say at the
end of the day, we're in a world of higher
tariffs and that should not be good for trade. But
we're in a kind of intermediate period now where we're
getting mixed results in the data.
Speaker 1 (06:33):
Yeah, because I mean you're going assumption as an economist,
but also the sense you're getting from clients and people
you're speaking with is the assumption that we're just in
a world of sort of ten percent is the beast
terraf for anything going into the US.
Speaker 3 (06:46):
Short answer I would say is yes, that there's a
general sense that we're not going to go back to
the world before Trump two point zero. And historically when
tariffs go up, they don't come down that quickly back
to where they originally were, So I think that's fair
to say. I mean, the Numura assumption right now is
(07:08):
fifteen percent US effective tariff rate once we take into
account some of the sexual tariffs as well. So I
think that is going to weigh on trade. But the
other thing that we haven't talked about that's a big
headwind is the uncertainty, the business uncertainty, because we don't
know where the tariffs could potentially go back up again,
(07:29):
and so I think businesses generally have become a lot
more cautious about doing large investments because of the uncertainty
around trade policy. But I would say generally foreign policy as.
Speaker 4 (07:45):
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(08:08):
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Speaker 1 (08:14):
How hard will that hangover be from all of this
front loading?
Speaker 3 (08:21):
So I think it depends a little bit on where
you're talking about, because in the US, I think it's
a little bit different to the rest of the world
because the US is the one that's imposing the tariffs
on all countries, and so it is going to raise
the costs of imports, and we think will start to
(08:45):
show up in higher inflation, maybe as soon as the
May CPI data. So that's a negative supply shock. But
at the same time, you're probably also going to have
a hit to demand because of the higher costs. Maybe
some will be absorbed by firm in profit margins. Some
will be passed on to inflation, and as you get
higher prices for products on the shelf of supermarkets, it
(09:10):
will start to weaken demand. So in the US we
do think it is going to be a stagflationary shock,
higher inflation, lower growth. But for the rest of the world,
which by and large has not raised tariffs much, it's
more of a negative demand shock from weaker exports and
weaker business investment because of all the uncertainty, And so
(09:34):
the rest of the world, I'd say it's more weaker
growth going forward and disinflation. So US weaker growth, higher inflation,
rest the world weaker growth, lower inflation. And in my team,
we particularly think that the lower inflation will be most
notable in Asia.
Speaker 1 (09:56):
How will that ripple through the economies. I'm thinking in
places like Malaysia, Vietnam, South Korea where price growth is
already slowing, and then Japan you have the government which
is trying to engineer inflation. Well, surely that might throw
a wrench into things. I mean, what kind of impact
(10:17):
do you see this year when it comes to disinflation
across Asia?
Speaker 3 (10:22):
Well, it's quite striking right now. That Japan I think
has the highest inflation rate out of all the big
economies in Asia. It hasn't been that way for decades.
But I mean aving is that there's a few things
that work here. One is that as tariffs go up
against China by the US, we will see more of
(10:44):
China's exports diverted to Asia. And these cheaper exports by China,
and as Asia imports more and more of them, it
is going to flood Asia with cheaper products. And that's distantly.
We were already seeing that last year, and we think
that's going to get stronger. The disinflationary force from China imports,
(11:08):
but also energy prices cut here have come down a
long way. In Asia is a very big net importer
of energy, so that's disinflationary. And on top of that,
we've had this. I don't think many people would have
predicted this, but Asian currencies have by and large been
appreciating against the dollar, which is also lowering the cost
(11:29):
of imports. So you know, right now we have two
countries Thailand and China, which on certain measures, are facing deflation.
I wouldn't be surprised if we start to see more
countries facing deflation in Asia or actually very low inflation.
And you know, one implication from all this is that
(11:51):
it will provide more room for Asian central banks to
cut interest rates even if the FED is on hold.
That's the view we have at MURA, is that from
India to Thailand to Korea, we're going to say several
more right cuts this year, Whereas for the FED, because
(12:13):
of the inflation I talked about in the US, the
FED will be a lot slower. We don't have the
FED cutting until December.
Speaker 1 (12:22):
And if the central banks in the region, you have
more room to cut rates. Meanwhile, trade picture uncertain but
probably not going to be as high demand as we've
been seeing in the past month. In total, would you
say for the year, I mean, do some of these
economic forces even out. Is this going to be a
(12:44):
good thing for Asia, you know, because we are seeing
this surgeon demand and the ability to cut rates and
stimulate demand. Or is it on the whole kind of
negative because tariff shocks and demand sharks are usually negative.
Speaker 3 (12:57):
I think on the whole it's going to be negative
because I think we shouldn't underestimate the negative effects from
all the uncertainty that's been created by radical economic policies
from the Trump administration. But as you say, protectionism and
tariffs is also negative. You know, the silver lining I
would say is in Asia some rotation in the drivers
(13:21):
of growth. I think the weak engines of growth will
be exports and capex investment spending. On the other hand,
I think we will see as I said, lower inflation
in Asia, which will be encouraging for consumption, but also
easier fiscal and monetary policies. So I think the resilient
(13:41):
part of Asia is actually going to be domestic consumption,
which will provide some offset but not a complete offset
to the weakness in exports and capex.
Speaker 2 (13:53):
Yes, I mean speaking of consumer demand.
Speaker 1 (13:55):
One country we haven't talked about it as much yet
is China and the domestic situation there, and officials have
made it a priority this year to sperm more consumption.
What are your thoughts on that. Are they going to
be able to do that? Is it more of a
long term project We shouldn't really expect a boost.
Speaker 3 (14:14):
So I think in China we have a situation now
where the consumer confidence is very weak, as it's been
hit by very severe lockdowns during the pandemic and then
the property market crisis, and Chinese households have built up
more leverage over the years, and so consumer spending is
(14:38):
fairly tepid right now. Beijing is trying to do this
trade in program where households can swap their existing durable
goods for new ones at subsidized prices.
Speaker 2 (14:50):
And it's been pretty successful.
Speaker 3 (14:51):
It's been successful. It has been successful so far. But
I'd say, cut to you, how many new fridges do
you want to buy? So you know. One thing we
feel for China is that it's not only front loading
of exports, but it is also front loading of consumption
through this trading program. And so while we are relatively
(15:12):
positive on China's growth in the coming months because of
all this front loading and with the tariffs coming down,
I talked about a burst of export activity, but as
we get into the second half of the year, we
think there will be paidback in China for retail sales
and exports. And to give you some numbers, we think
(15:32):
that China's GDP growth could be around four point eight
percent this quarter Q two, but in the second half
of the year we have it slowing to around four percent.
Speaker 1 (15:43):
Okay, so for the full year, not quite reaching the
five percent target that officials have set.
Speaker 3 (15:49):
Yeah, if you work out the full twenty twenty five
year growth full class on our numbers, that would be
around four point five.
Speaker 1 (15:56):
So really in the second half, trade slowing down quite a.
Speaker 3 (15:58):
Bit, sports slowing down quite a bit, and also probably
some payback on the consumption side as well.
Speaker 1 (16:06):
With Chinese exports. You know, something we've been seeing is
that even though China's share of exports to the US
has gone down, but globally it's actually increased. So there's
kind of a way that Chinese manufacturers have been finding
or maintaining their place in supply chains. So I wonder
if we will see that kind of continuing in the
(16:29):
years to come. So you know, a company might not
source from China, but they might source from that same
company just located in Malaysia, for example.
Speaker 3 (16:38):
Yeah, so that phenomenon is very very clear in the data.
What you said, In terms of China's export shared to
the US in April, it has dipped now to ten
point five percent, whereas if you look at, for instance,
China's export shared to Asian countries, it's picked up now
to nineteen point one percent. So it's getting close to
being almost twice as much as to the US. And
(17:02):
this is what I think we have to give credit
to multinational companies. They're very, very nimble, and they obviously
have factories around the world and they can shift their
production fairly quickly to ensure that they minimize costs and
maximize their profits. If you go back to Trump one
point zero, in a way, Trump one point zero, all
(17:25):
the US tariffs were aimed directly at China, and US
trade deficit with China did narrow quite noticeably. But when
you look at the US's overall trade deficit, it didn't narrow.
It got larger. And that was because of what we've
just talked about. Multinationals were able to reallocate their exports
(17:48):
to the US, Chinese companies, multinationals in China that exported
more to Vietnam, to Mexico that then got rerouted to
the US. I think what's going to be interesting over
the rest of this year is whether the US does
and it is successful in trying to encircle China and
(18:08):
getting other countries and particularly the EU to raise tariffs
against over capacity from China and the dumping of Chinese
exports into the EU. You know, if that happens, it
will get much more challenging for China. And I think
one interesting thing there will be, does China flood Asia
(18:32):
its home market, its backdoor market with cheap imports, because
you know the US market, the US consumer is massive,
and as you start to restrict China's markets, Asia is
a lot smaller as a consumer market, and so it
can be hit a lot harder if China has to
redirect a lot of its product to Asia. I mean,
(18:56):
the other option for China would be to scale back
production its own production, but then that's going to hurt
China's economy and potentially the labor market and jobs quite
a bit. I mean, as we talked about earlier, the
ultimate solution is for China to really also increase its
own consumer demand. But coming off the pandemic and the
(19:16):
lockdowns and the property market crisis that was really severe,
I don't think Chinese households are in a mood to
really ramp up their spending aggressively in this stage. I
think that's going to take time.
Speaker 1 (19:29):
And when you said encircling China and kind of how
that will play out, is that of referring to how
President Trump had these discussions with Mexico and China and
floated this idea that those countries or other countries should
perhaps add restrictions trade restrictions on China.
Speaker 3 (19:47):
Yeah, that's part of what I have in mind, is
that the US could pressure other countries to kind of
join this coalition to try to limit to China's exporting
of cheap products. And in a way, it could be
a coalition of countries that are trying to maybe decouple
(20:10):
de risk from China. At the same time, China also
may want to de risk from the US. And so
you know, this leads to the discussion that's happening now
about this risk that where you know, could move to
a multi polar world where we have certain trade blocks
for economic and geopolitical reasons. But I would say, at
(20:35):
the end of the day, or you know, if we're
moving to a world where you have certain blocks and
restrictions and barriers to trade and you only trade within
regions much less outside those regions, that all raises costs
and inefficiencies, and so it's not good for global growth.
Speaker 1 (20:55):
Does it make sense for Southeast Asian economies any Asian
economies for that matter, to join that kind of coalition
If one were to exist, you know, like, economically speaking,
does it make sense for these economies given their dependence
on trade with China, Chinese Belt and Rold initiative and
investment in infrastructure and companies across the region. Doesn't make
(21:18):
sense for countries in that case to effectively add a
tariff onto Chinese imports were restricted in any way.
Speaker 3 (21:25):
I think for Asia it's the toughest decision compared to
Europe in the sense that Asia is very strongly linked
to China economically. Now there's so much trade and investment
between China and the rest of Asia, Whereas for many
Asian countries, the US has been a very strong ally
(21:46):
and a very important support from a security perspective, And
so that is a challenge for many Asian countries that
have i think essentially been hedging between China and the
US many many years. It could be that what Europe
decides to do could in turn then ultimately influence what
(22:07):
Asia decides. So does the EU in the end get
closer to the US with trade deals and maybe follows
the US in being tougher on China, or does the
EU actually not have a trade deal with the US
and decides that it wants to maintain decent economic linkages
(22:30):
with China. I think which way the EU goes will
be important, because if the EU does not follow what
the US wants to do here, then Asia has more flexibility,
I think, to trade with EU and China. Whereas if
the EU kind of does start to move down the
(22:51):
path of strengthening ties with the US and reducing ties
of China, then maybe it's going to be tougher for
Asia and they may have to make a really hard
decision about whether they're going to move more towards China
or more towards the US and EU.
Speaker 1 (23:07):
Are there any side effects or knock on effects that
we're not thinking about yet when it comes to the
trade back and forth, the whip saying whatever you want
to call it, the activity we've been seeing, anything that's
been on your mind.
Speaker 3 (23:27):
I'm glad you asked that, because I think there's a
real risk that we're going to see unanticipated supply side disruptions. So,
if you think about it, we haven't had tariff rates
this high for I think you've got to go back
seventy years over a generation, and compared now to back
(23:50):
then the world is so much more integrated and so
you know whether it's the case that with these tariffs
there could be a particular company sector that actually starts
to run out and shortages of a critical component that
then affects the whole production of a finished good. That's
one way this could happen and we could see these
(24:12):
unforeseen consequences. Just to give you an example, what about
the US construction sector Under the Trump administration, There's been
a big cutback on immigration and even deportations. Migrant workers
are so important for the construction sector in the US,
and we've had tariffs on aluminium, steel, potentially lumbar going forward.
(24:34):
A lot of imports that go into construction come from China,
let's say air conditioning for example. So are we're going
to suddenly face a bottleneck shortage of supply of new
homes being constructed in the US as one example. The
other example I'd give you is small companies in the
US that depend very heavily on imports. And they're small,
(24:57):
so they really need activity to flow through through and
production and sales to happen, or they're going to have
cash flow problems. What happens if some of these small
companies start to face it's just too expensive for them
to continue. That could have flow on effects to the
small banks that are the biggest lenders to small companies
in the US. So I do worry about unforeseen kind
(25:21):
of consequences. And even in Asia, we're starting to see
more and more cheap imports from China coming in. Are
we going to see more small companies in Asia starting
to face too much competition from China and they can't
continue in operating as they have. So we've had a
big shock at the end of the day. Even though
tariffs have come down a bit, they're still much much
(25:43):
higher than they used to be and there's so much uncertainty.
I think we have to be prepared for unforeseen disruptions
going forward on the supply side.
Speaker 2 (25:53):
Cautionary note there.
Speaker 3 (25:55):
Yes, I'm afraid so well.
Speaker 1 (25:57):
Thanks so much for joining us today, Rob, I really
appreciate it.
Speaker 3 (26:00):
Thanks Cattie, I really enjoyed it.
Speaker 1 (26:04):
You've been listening to Asia Centric from Bloomberg Intelligence. I'm
Katjudmitrieva here in Hong Kong. You can find all of
our episodes on Apple Podcasts, Spotify, or wherever you listen.
This podcast was produced and edited by Clara Chen. Thanks
for listening and see you next time.
President Donald Trump's trade war is upending supply chains and
business yet again. After announcing sky high global tariffs in April,
he soon put them on hold. That back and forth
caused whiplash across Asia the world's factory floor companies canceled orders,
then rapidly reopened them.
Speaker 2 (00:20):
Ships were suddenly in demand.
Speaker 1 (00:21):
With freight prices up the most all year, and bookings
on those ships also soared, particularly the important China to
US route. You're listening to Asia Centric from Bloomberg Intelligence.
I'm Kante Dimitrieva here in Hong Kong, and today we're
looking at what the trade data tells us about the
fallout so far. How is this rapid fire change going
(00:45):
to impact economic growth, currencies and investment? And are there
any winners? Robert Suberaman is here to help us answer that.
He's head of Global macro Research at NIMURA based in Singapore. Rob.
Speaker 3 (01:01):
Welcome, Thank you, Katia. Great to be here.
Speaker 1 (01:04):
Well, Rob, maybe we can start with what we do know.
So Trump has announced tariffs, he paused them to negotiate
bi lateral deals. What have you seen since then across
the world and primarily here when it comes to sort
of company reaction and trade flows.
Speaker 3 (01:19):
Well, I can tell you, Katya on the trade flows.
My team's been analyzing the high frequency data plus details,
very detailed look at exports by product and by destination,
and i'd say, in a word, it's very complicated. Now
we have a mix of front loading of exports in
(01:39):
some countries, we have trade diversion happening. Instead of directly
exports from China to the US, they're going to third countries.
And we're also very much on the lookout for payback
from the front loading of exports. So it's a real mix,
you know, in terms of front loading, i'd say in
Asian the data we've being getting for April shows very
(02:02):
strong export growth in the well over double digit, over
twenty percent in Singapore, Taiwan, and we're seeing in particular
very strong export growth to the US. Malaysia's exports to
the US forty five percent in April, Singapore's forty eight percent,
of Vietnam's thirty four percent growth. So there is some
(02:24):
science of trade diversion in our view, because when we
looked at China's exports in April, they were down twenty
one percent to the US but up twenty one percent
to Asian, so some trade diversion. But the other interesting
thing is US China tariff de escalation that's happened, and
(02:44):
when we look at high frequency data, what we're seeing
now is a very strong rebound in container vessels departing
from China to the US, but particularly in orders for shipping.
If we're looking at the bookings of ships from China
to the US, they were up over one hundred percent
(03:07):
in the week to eleven May. So it's looking like
maybe we're going to be seeing a rebound in Chinese
exports to the US in the coming months because there's
this window of opportunity now while the tariffs have come
down to step up those trade orders before. Who knows
what's going to happen after the ninety day grace period expires.
Speaker 1 (03:30):
And you said that there's some signs that China may
be sending goods to Southeast Asian neighbors, and then is
the idea that they're going to the US from there.
Speaker 3 (03:40):
You can't be certain at this stage because you don't
have as much granular detail. But what we are seeing
is in April, this is before the tariff de escalation,
China's exports to the US were down twenty one percent,
but China's exports to Asian were up twenty one percent,
and since then seen in the Asian data like Malaysia, Singapore,
(04:03):
and Vietnam very strong exports to the US. So we
can't be definitive, but there is some signs in this
pattern of trade that maybe trade diversion is still going on.
The other interesting thing cut here up is on the electronics.
So Asia is a very big exporter of electronics, and
(04:25):
we've seen very strong exports of electronics by Singapore, Malaysia, Taiwan,
a lot of it high end semiconductors. And we do
wonder whether this is in anticipation of maybe sexual tariffs
on semiconductors and maybe more broadly tech products, that Asia,
(04:49):
which is the hub in the world, the factory for
making chips and electronic products, whether they're trying to get
race ahead of potential sexual tariffs.
Speaker 1 (04:59):
Yeah, because if you're in americ and Company, I mean,
at this point, you're probably thinking, we don't care where
we have to put it, we don't care how much
of it we have. We just need to get it
here before tariffs come in exactly.
Speaker 3 (05:11):
And you know, the idea is to maybe build up
your inventory with cheaper electronic products or other products, because
who knows what's going to happen once, you know, July ninth,
when the reciprocal tariff sixpire, or August twelve, after the
US China tariff truce expires. I think generally there is
quite a bit of signs that there's been front loading
(05:33):
and trade diversion at this stage. The big question I
think we have in the coming months is, you know,
inevitably when there's front loading, there will be payback, and
we aren't seeing much sign of the payback yet. Maybe
it's too early. Maybe the only sign where maybe we're
starting to see it is Korea's exports for the first
(05:55):
twenty days of May we're down two point four percent,
and Career has the most timely exports in Asia and
they were down, So you know, maybe that's a sign.
As we get more May data and June data, we'll
start to see the other side of this. But as
I said, because of now there's truce between the US
and China, China is wrapping up its exports again, so
(06:18):
it's very complicated at this stage. I'd say at the
end of the day, we're in a world of higher
tariffs and that should not be good for trade. But
we're in a kind of intermediate period now where we're
getting mixed results in the data.
Speaker 1 (06:33):
Yeah, because I mean you're going assumption as an economist,
but also the sense you're getting from clients and people
you're speaking with is the assumption that we're just in
a world of sort of ten percent is the beast
terraf for anything going into the US.
Speaker 3 (06:46):
Short answer I would say is yes, that there's a
general sense that we're not going to go back to
the world before Trump two point zero. And historically when
tariffs go up, they don't come down that quickly back
to where they originally were, So I think that's fair
to say. I mean, the Numura assumption right now is
(07:08):
fifteen percent US effective tariff rate once we take into
account some of the sexual tariffs as well. So I
think that is going to weigh on trade. But the
other thing that we haven't talked about that's a big
headwind is the uncertainty, the business uncertainty, because we don't
know where the tariffs could potentially go back up again,
(07:29):
and so I think businesses generally have become a lot
more cautious about doing large investments because of the uncertainty
around trade policy. But I would say generally foreign policy as.
Speaker 4 (07:45):
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Speaker 1 (08:14):
How hard will that hangover be from all of this
front loading?
Speaker 3 (08:21):
So I think it depends a little bit on where
you're talking about, because in the US, I think it's
a little bit different to the rest of the world
because the US is the one that's imposing the tariffs
on all countries, and so it is going to raise
the costs of imports, and we think will start to
(08:45):
show up in higher inflation, maybe as soon as the
May CPI data. So that's a negative supply shock. But
at the same time, you're probably also going to have
a hit to demand because of the higher costs. Maybe
some will be absorbed by firm in profit margins. Some
will be passed on to inflation, and as you get
higher prices for products on the shelf of supermarkets, it
(09:10):
will start to weaken demand. So in the US we
do think it is going to be a stagflationary shock,
higher inflation, lower growth. But for the rest of the world,
which by and large has not raised tariffs much, it's
more of a negative demand shock from weaker exports and
weaker business investment because of all the uncertainty, And so
(09:34):
the rest of the world, I'd say it's more weaker
growth going forward and disinflation. So US weaker growth, higher inflation,
rest the world weaker growth, lower inflation. And in my team,
we particularly think that the lower inflation will be most
notable in Asia.
Speaker 1 (09:56):
How will that ripple through the economies. I'm thinking in
places like Malaysia, Vietnam, South Korea where price growth is
already slowing, and then Japan you have the government which
is trying to engineer inflation. Well, surely that might throw
a wrench into things. I mean, what kind of impact
(10:17):
do you see this year when it comes to disinflation
across Asia?
Speaker 3 (10:22):
Well, it's quite striking right now. That Japan I think
has the highest inflation rate out of all the big
economies in Asia. It hasn't been that way for decades.
But I mean aving is that there's a few things
that work here. One is that as tariffs go up
against China by the US, we will see more of
(10:44):
China's exports diverted to Asia. And these cheaper exports by China,
and as Asia imports more and more of them, it
is going to flood Asia with cheaper products. And that's distantly.
We were already seeing that last year, and we think
that's going to get stronger. The disinflationary force from China imports,
(11:08):
but also energy prices cut here have come down a
long way. In Asia is a very big net importer
of energy, so that's disinflationary. And on top of that,
we've had this. I don't think many people would have
predicted this, but Asian currencies have by and large been
appreciating against the dollar, which is also lowering the cost
(11:29):
of imports. So you know, right now we have two
countries Thailand and China, which on certain measures, are facing deflation.
I wouldn't be surprised if we start to see more
countries facing deflation in Asia or actually very low inflation.
And you know, one implication from all this is that
(11:51):
it will provide more room for Asian central banks to
cut interest rates even if the FED is on hold.
That's the view we have at MURA, is that from
India to Thailand to Korea, we're going to say several
more right cuts this year, Whereas for the FED, because
(12:13):
of the inflation I talked about in the US, the
FED will be a lot slower. We don't have the
FED cutting until December.
Speaker 1 (12:22):
And if the central banks in the region, you have
more room to cut rates. Meanwhile, trade picture uncertain but
probably not going to be as high demand as we've
been seeing in the past month. In total, would you
say for the year, I mean, do some of these
economic forces even out. Is this going to be a
(12:44):
good thing for Asia, you know, because we are seeing
this surgeon demand and the ability to cut rates and
stimulate demand. Or is it on the whole kind of
negative because tariff shocks and demand sharks are usually negative.
Speaker 3 (12:57):
I think on the whole it's going to be negative
because I think we shouldn't underestimate the negative effects from
all the uncertainty that's been created by radical economic policies
from the Trump administration. But as you say, protectionism and
tariffs is also negative. You know, the silver lining I
would say is in Asia some rotation in the drivers
(13:21):
of growth. I think the weak engines of growth will
be exports and capex investment spending. On the other hand,
I think we will see as I said, lower inflation
in Asia, which will be encouraging for consumption, but also
easier fiscal and monetary policies. So I think the resilient
(13:41):
part of Asia is actually going to be domestic consumption,
which will provide some offset but not a complete offset
to the weakness in exports and capex.
Speaker 2 (13:53):
Yes, I mean speaking of consumer demand.
Speaker 1 (13:55):
One country we haven't talked about it as much yet
is China and the domestic situation there, and officials have
made it a priority this year to sperm more consumption.
What are your thoughts on that. Are they going to
be able to do that? Is it more of a
long term project We shouldn't really expect a boost.
Speaker 3 (14:14):
So I think in China we have a situation now
where the consumer confidence is very weak, as it's been
hit by very severe lockdowns during the pandemic and then
the property market crisis, and Chinese households have built up
more leverage over the years, and so consumer spending is
(14:38):
fairly tepid right now. Beijing is trying to do this
trade in program where households can swap their existing durable
goods for new ones at subsidized prices.
Speaker 2 (14:50):
And it's been pretty successful.
Speaker 3 (14:51):
It's been successful. It has been successful so far. But
I'd say, cut to you, how many new fridges do
you want to buy? So you know. One thing we
feel for China is that it's not only front loading
of exports, but it is also front loading of consumption
through this trading program. And so while we are relatively
(15:12):
positive on China's growth in the coming months because of
all this front loading and with the tariffs coming down,
I talked about a burst of export activity, but as
we get into the second half of the year, we
think there will be paidback in China for retail sales
and exports. And to give you some numbers, we think
(15:32):
that China's GDP growth could be around four point eight
percent this quarter Q two, but in the second half
of the year we have it slowing to around four percent.
Speaker 1 (15:43):
Okay, so for the full year, not quite reaching the
five percent target that officials have set.
Speaker 3 (15:49):
Yeah, if you work out the full twenty twenty five
year growth full class on our numbers, that would be
around four point five.
Speaker 1 (15:56):
So really in the second half, trade slowing down quite a.
Speaker 3 (15:58):
Bit, sports slowing down quite a bit, and also probably
some payback on the consumption side as well.
Speaker 1 (16:06):
With Chinese exports. You know, something we've been seeing is
that even though China's share of exports to the US
has gone down, but globally it's actually increased. So there's
kind of a way that Chinese manufacturers have been finding
or maintaining their place in supply chains. So I wonder
if we will see that kind of continuing in the
(16:29):
years to come. So you know, a company might not
source from China, but they might source from that same
company just located in Malaysia, for example.
Speaker 3 (16:38):
Yeah, so that phenomenon is very very clear in the data.
What you said, In terms of China's export shared to
the US in April, it has dipped now to ten
point five percent, whereas if you look at, for instance,
China's export shared to Asian countries, it's picked up now
to nineteen point one percent. So it's getting close to
being almost twice as much as to the US. And
(17:02):
this is what I think we have to give credit
to multinational companies. They're very, very nimble, and they obviously
have factories around the world and they can shift their
production fairly quickly to ensure that they minimize costs and
maximize their profits. If you go back to Trump one
point zero, in a way, Trump one point zero, all
(17:25):
the US tariffs were aimed directly at China, and US
trade deficit with China did narrow quite noticeably. But when
you look at the US's overall trade deficit, it didn't narrow.
It got larger. And that was because of what we've
just talked about. Multinationals were able to reallocate their exports
(17:48):
to the US, Chinese companies, multinationals in China that exported
more to Vietnam, to Mexico that then got rerouted to
the US. I think what's going to be interesting over
the rest of this year is whether the US does
and it is successful in trying to encircle China and
(18:08):
getting other countries and particularly the EU to raise tariffs
against over capacity from China and the dumping of Chinese
exports into the EU. You know, if that happens, it
will get much more challenging for China. And I think
one interesting thing there will be, does China flood Asia
(18:32):
its home market, its backdoor market with cheap imports, because
you know the US market, the US consumer is massive,
and as you start to restrict China's markets, Asia is
a lot smaller as a consumer market, and so it
can be hit a lot harder if China has to
redirect a lot of its product to Asia. I mean,
(18:56):
the other option for China would be to scale back
production its own production, but then that's going to hurt
China's economy and potentially the labor market and jobs quite
a bit. I mean, as we talked about earlier, the
ultimate solution is for China to really also increase its
own consumer demand. But coming off the pandemic and the
(19:16):
lockdowns and the property market crisis that was really severe,
I don't think Chinese households are in a mood to
really ramp up their spending aggressively in this stage. I
think that's going to take time.
Speaker 1 (19:29):
And when you said encircling China and kind of how
that will play out, is that of referring to how
President Trump had these discussions with Mexico and China and
floated this idea that those countries or other countries should
perhaps add restrictions trade restrictions on China.
Speaker 3 (19:47):
Yeah, that's part of what I have in mind, is
that the US could pressure other countries to kind of
join this coalition to try to limit to China's exporting
of cheap products. And in a way, it could be
a coalition of countries that are trying to maybe decouple
(20:10):
de risk from China. At the same time, China also
may want to de risk from the US. And so
you know, this leads to the discussion that's happening now
about this risk that where you know, could move to
a multi polar world where we have certain trade blocks
for economic and geopolitical reasons. But I would say, at
(20:35):
the end of the day, or you know, if we're
moving to a world where you have certain blocks and
restrictions and barriers to trade and you only trade within
regions much less outside those regions, that all raises costs
and inefficiencies, and so it's not good for global growth.
Speaker 1 (20:55):
Does it make sense for Southeast Asian economies any Asian
economies for that matter, to join that kind of coalition
If one were to exist, you know, like, economically speaking,
does it make sense for these economies given their dependence
on trade with China, Chinese Belt and Rold initiative and
investment in infrastructure and companies across the region. Doesn't make
(21:18):
sense for countries in that case to effectively add a
tariff onto Chinese imports were restricted in any way.
Speaker 3 (21:25):
I think for Asia it's the toughest decision compared to
Europe in the sense that Asia is very strongly linked
to China economically. Now there's so much trade and investment
between China and the rest of Asia, Whereas for many
Asian countries, the US has been a very strong ally
(21:46):
and a very important support from a security perspective, And
so that is a challenge for many Asian countries that
have i think essentially been hedging between China and the
US many many years. It could be that what Europe
decides to do could in turn then ultimately influence what
(22:07):
Asia decides. So does the EU in the end get
closer to the US with trade deals and maybe follows
the US in being tougher on China, or does the
EU actually not have a trade deal with the US
and decides that it wants to maintain decent economic linkages
(22:30):
with China. I think which way the EU goes will
be important, because if the EU does not follow what
the US wants to do here, then Asia has more flexibility,
I think, to trade with EU and China. Whereas if
the EU kind of does start to move down the
(22:51):
path of strengthening ties with the US and reducing ties
of China, then maybe it's going to be tougher for
Asia and they may have to make a really hard
decision about whether they're going to move more towards China
or more towards the US and EU.
Speaker 1 (23:07):
Are there any side effects or knock on effects that
we're not thinking about yet when it comes to the
trade back and forth, the whip saying whatever you want
to call it, the activity we've been seeing, anything that's
been on your mind.
Speaker 3 (23:27):
I'm glad you asked that, because I think there's a
real risk that we're going to see unanticipated supply side disruptions. So,
if you think about it, we haven't had tariff rates
this high for I think you've got to go back
seventy years over a generation, and compared now to back
(23:50):
then the world is so much more integrated and so
you know whether it's the case that with these tariffs
there could be a particular company sector that actually starts
to run out and shortages of a critical component that
then affects the whole production of a finished good. That's
one way this could happen and we could see these
(24:12):
unforeseen consequences. Just to give you an example, what about
the US construction sector Under the Trump administration, There's been
a big cutback on immigration and even deportations. Migrant workers
are so important for the construction sector in the US,
and we've had tariffs on aluminium, steel, potentially lumbar going forward.
(24:34):
A lot of imports that go into construction come from China,
let's say air conditioning for example. So are we're going
to suddenly face a bottleneck shortage of supply of new
homes being constructed in the US as one example. The
other example I'd give you is small companies in the
US that depend very heavily on imports. And they're small,
(24:57):
so they really need activity to flow through through and
production and sales to happen, or they're going to have
cash flow problems. What happens if some of these small
companies start to face it's just too expensive for them
to continue. That could have flow on effects to the
small banks that are the biggest lenders to small companies
in the US. So I do worry about unforeseen kind
(25:21):
of consequences. And even in Asia, we're starting to see
more and more cheap imports from China coming in. Are
we going to see more small companies in Asia starting
to face too much competition from China and they can't
continue in operating as they have. So we've had a
big shock at the end of the day. Even though
tariffs have come down a bit, they're still much much
(25:43):
higher than they used to be and there's so much uncertainty.
I think we have to be prepared for unforeseen disruptions
going forward on the supply side.
Speaker 2 (25:53):
Cautionary note there.
Speaker 3 (25:55):
Yes, I'm afraid so well.
Speaker 1 (25:57):
Thanks so much for joining us today, Rob, I really
appreciate it.
Speaker 3 (26:00):
Thanks Cattie, I really enjoyed it.
Speaker 1 (26:04):
You've been listening to Asia Centric from Bloomberg Intelligence. I'm
Katjudmitrieva here in Hong Kong. You can find all of
our episodes on Apple Podcasts, Spotify, or wherever you listen.
This podcast was produced and edited by Clara Chen. Thanks
for listening and see you next time.
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