This week, we look again at US tariff policy and explore its potential implications for Asia, particularly China and South Korea. While US President Trump has temporarily dialled back his actions on Canada and Mexico, he has moved forward with doubling the tariff rate on China to 20%. However, China’s trade data have already started to exhibit more fragility (chart 1), and lingering uncertainties are also beginning to affect other trade-dependent economies, such as South Korea (chart 2). To make matters worse, South Korea is grappling with significant political uncertainty at home, with much-needed fiscal support still in limbo. This only adds to the policy uncertainty it faces (chart 3). We also take a closer look at the key messaging coming out of China’s National People’s Congress, which began last Wednesday. Notably, China reaffirmed its commitment to an annual growth target of "around 5%" (chart 4), supported in part by more expansionary fiscal policy (chart 5). Additionally, we examine China’s increased focus on shifting toward a more consumption-driven economy and the associated challenges (chart 6). This shift seems increasingly necessary, given the potential decline in export revenues due to more protectionist US policies.
The US’ latest tariff actions Last week, US President Trump proceeded with the implementation of blanket 25% tariffs on Canada and Mexico, following a prior delay. Additionally, he doubled import tariffs on China, increasing them from 10% to 20%. However, he later provided an interim reprieve for goods covered under the United States-Mexico-Canada Agreement (USMCA), delaying some tariffs on Canada and Mexico until April 2. In response, China swiftly retaliated by imposing tariffs ranging from 10% to 15% on US agricultural products, among other countermeasures. It is important to note that China's response to the US's broad tariffs has been relatively restrained. In terms of numbers, China’s export growth has already slowed amid heightened trade uncertainty, as shown in chart 1. This slowdown is partly due to the easing of growth following prior front-loading of exports, as well as a decline in imports driven by softer demand.