Southeast Asia's Market Reactions to U.S. Tariffs and Global Volatility

In this episode, Michelle explores Southeast Asia's economic landscape amid global challenges. She analyzes the impact of U.S. tariffs, inflation, and monetary policy on the region, examining their effects on foreign exchange rates and financial markets. Featuring expert opinions, the episode also covers emerging markets in Southeast Asia contrasted with Japan's economic outlook. As global market volatility persists, Michelle discusses strategies for investors to navigate uncertainties. The episode wraps up with closing remarks, emphasizing the importance of staying informed about regional economic dynamics.

Episode Transcript

(00:00):
Welcome back to the Southeast Asia MarketsDaily Brief.

(00:02):
I’m your host, AI Michelle.
Here are our top stories today...
First, Asia takes a big hit from tariffs withVietnam and Thailand being the most affected,
while exemptions help ease the impact for Indiaand Singapore.
Second, U.S.
tariffs are harming Asian economies, raisingfears of a recession with high interest rates.

(00:27):
Third, emerging-market investors are bracingfor a ‘body blow’ from U.S.
tariffs.
In today's episode, we dive into thesignificant economic impact of U.S.
President Donald Trump's newly announcedtariffs on Asia.
The tariffs range from ten to forty-ninepercent, with Vietnam and Thailand facing some

(00:47):
of the harshest levies.
These tariffs target countries that exportlower-value-added items like footwear,
furniture, garments, and textiles.
Vietnam, in particular, finds itself in achallenging position, facing a forty-six
percent tariff due to its substantial tradedeficit with the United States.
Cambodia, Sri Lanka, and Bangladesh are not farbehind, with tariffs at forty-nine, forty-four,

(01:12):
and thirty-seven percent, respectively.
Interestingly, larger economies such as India,Japan, and South Korea, while still facing
tariffs, are relatively better off.
Their tariffs are in the twenty-four totwenty-six percent range, and crucial sectors
like pharmaceuticals and semiconductors enjoyexemptions.
This provides some cushion against the economicblow.

(01:36):
Thailand and Taiwan, however, are not sofortunate.
They face relatively higher tariffs due totheir larger trade surpluses with the United
States.
Taiwan's reliance on the U.S.
market, particularly for semiconductor exports,means these tariffs could dampen its growth
prospects.
For Vietnam, the situation is even more dire,with the potential to impact up to five point

(01:59):
five percent of its Gross Domestic Product,assuming demand elasticity remains constant.
Singapore and India, on the other hand, benefitfrom their exemptions on pharmaceutical exports
to the U.S., which helps them mitigate some ofthe tariff impacts.
However, Singapore's indirect exposure to theU.S.
market remains a significant concern, as itcould have a more pronounced effect on its

(02:23):
economy.
The automotive sector in Asia is also underthreat, with already announced tariffs on
automobiles and auto parts adding to theregion's woes.
Thailand, a major auto manufacturing hub, isparticularly vulnerable, already grappling with
rising competition from Chinese electricvehicles and weak domestic demand.

(02:46):
South Korea and Japan, too, stand to losesignificantly, given their substantial exposure
to U.S.
auto imports.
While retaliatory tariffs from the Associationof Southeast Asian Nations members and India
seem unlikely, negotiations continue.
Vietnam, in particular, is making efforts tomitigate the impact by offering concessions

(03:07):
such as reducing import duties on certaingoods.
This tariff scenario comes at a time wheninflationary pressures in Asia are at their
lowest in three years.
However, China's overcapacity in varioussectors, exacerbated by the tariffs, poses a
threat to demand across the region.
This situation suggests that further monetarypolicy easing in Asia might be on the horizon,

(03:33):
with potential rate cuts in countries likeKorea, Indonesia, the Philippines, India,
Singapore, and Australia.
Finally, the implications for foreign exchangemarkets are significant.
Asian currencies, which appreciated modestlyagainst the U.S.
dollar earlier this year, now face increaseddepreciation pressures.

(03:55):
The Thai Baht and Vietnamese Dong, inparticular, are under pressure, while the
Indian Rupee, Philippine Peso, and SingaporeDollar might outperform in the near term due to
their relatively lesser exposure to tariffs.
The newly announced tariffs by United StatesPresident Donald Trump have sent shockwaves
through Asian economies, raising fears of animpending recession.

(04:20):
The tariffs, which are being described asmutual, impose a basic rate of ten percent on
all countries, with additional individualtariffs on sixty nations deemed the 'worst' by
the U.S.
administration.
These tariffs have been particularly severe forAsian countries, with China facing a total
tariff rate of fifty-four percent, South Koreaat twenty-five percent, and Japan at

(04:43):
twenty-four percent.
The financial markets have reacted sharply tothese developments.
Asian currencies and stocks experienced sellingpressure, with the Thai Baht and Chinese Yuan
falling by approximately zero point sevenpercent.
The Australian and New Zealand Dollars,sensitive to economic conditions, also declined
by about one percent.

(05:04):
In contrast, there was a surge in Australianand New Zealand government bonds as investors
sought safe-haven assets.
Experts like Nick Tweedale, a senior analyst atAT Global Markets, have expressed concerns
about the unexpected severity of these tariffs.
He noted that most Asian markets, includingJapan, are likely to suffer significant

(05:25):
downturns, with both stocks and currenciesprojected to plummet.
The hefty tariffs on China, in particular, areexpected to have far-reaching negative impacts
on global trade.
The situation is particularly dire for emergingmarkets in Southeast Asia, which are seen as
the primary targets of these measures.
Economists like Brendan McKenna from WellsFargo have highlighted this focus, while Brad

(05:50):
Bechtel from Jefferies Financial Group warnedthat the tariffs could exacerbate existing
inflation issues in many emerging countries,potentially fueling global inflation.
Japan's situation is complicated by itssubstantial trade deficit with the United
States in the automotive sector, makingnegotiations challenging.

(06:10):
Ueda Marito, head of market research at Japan'sSBI, predicts that the Japanese Yen could
strengthen as a result, potentiallyappreciating to the low 148 yen per dollar
range.
This would be accompanied by a potentialplummet in the Japanese stock market.
Overall, the economic landscape in Asia isunder significant strain due to these U.S.

(06:32):
tariffs.
The pressure on Asian currencies is increasing,and the potential for a regional recession
looms large.
As these tariffs are implemented, the economicgrowth prospects for many Asian countries are
clouded by uncertainty and volatility in thefinancial markets.
The recent announcement of tariffs by PresidentDonald Trump has sent ripples through the

(06:55):
global market, with emerging-market investorsparticularly on edge.
The tariffs, ranging from ten to forty-ninepercent, are not only impacting trade but also
creating volatility in financial marketsworldwide.
Public reaction from governments in developingnations was initially muted following Trump's

(07:16):
announcement.
However, the financial implications have notgone unnoticed by emerging-market specialists,
especially those focused on fixed-incomeinvestments.
The tariffs have intensified pressure on thesemarkets, which are already grappling with
inflation and currency depreciation.
Interestingly, the dollar's blowback providedsome reassurance to investors.

(07:42):
For those specializing in emerging markets,particularly in fixed-income sectors, the
weakening of the dollar has been a silverlining.
A softer dollar could potentially ease some ofthe financial strain on these markets, although
the overall outlook remains cautious.
Experts have highlighted that the dollar'sdepreciation might offer temporary relief, but

(08:04):
the broader economic challenges persist.
Emerging markets are still vulnerable to theripple effects of U.S.
tariffs, as they face heightened risks such ascapital outflows and increased borrowing costs.
These factors could exacerbate existingeconomic vulnerabilities in many developing
nations.
The implications of these tariffs extend beyondimmediate market reactions.

(08:28):
Investors are bracing for a 'body blow' as thetariffs are expected to slow economic growth in
key emerging regions.
This slowdown could lead to a reassessment ofinvestment strategies, as investors seek to
navigate the uncertain terrain of global tradedynamics.
As we continue to monitor the situation, it'sclear that the landscape for emerging markets

(08:50):
is shifting.
The combination of U.S.
tariffs, currency fluctuations, and globaleconomic headwinds presents a complex set of
challenges for investors and policymakersalike.
Alright that's a wrap for this episode.
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(09:11):
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Thanks again for listening, and hope to catchyou next time.