AsiaThis week, we maintain our focus on global trade, particularly following the decision by the US administration to reverse its “reciprocal” tariffs coupled with its significant escalation of trade tensions with China. Markets have been understandably volatile over the past week (chart 1), with President Trump’s decision to hold “reciprocal” tariffs at 10% and pause a further increase offering a temporary reprieve. Still, China’s significantly increased exposure to US tariffs (chart 2) remains a key concern for investors, even as weekend announcements of exemptions for certain electronics and semiconductor products provide some relief—albeit a partial one. Nonetheless, the reality is that the US and China remain deeply interdependent when it comes to trade. Neither can be independent of the other without substantial economic costs. The latest escalation is reminiscent of a game of chicken between the two global powers—except this is not a game. It is real life, with real consequences for businesses, consumers, and economies around the world. That said, the degree of mutual reliance is not equal. The US is arguably more dependent on Chinese imports, particularly in goods trade, despite some signs of decoupling in recent years (chart 3). This becomes especially clear when looking at specific product categories: many of the US economy’s low export-to-import ratio goods (chart 4) are primarily sourced from China (chart 5). Without readily available and complete alternatives, the latest round of tariffs may soon be felt in the form of rising consumer prices. Looking beyond goods, however, the US continues to maintain a strong services trade surplus globally, including with much of Asia (chart 6). This may serve as an alternative channel for the US to manage its trade balance going forward.
Latest US-China trade developments Just days after US President Trump unveiled his sweeping “reciprocal” tariffs on April 2, he announced a 90-day pause for all economies except China, opting instead to maintain a 10% additional tariff on others in the interim. What followed was a flurry of tit-for-tat measures between the US and China. Within days, the US raised its additional economy-wide trade tariffs on China from 20% in March to a staggering 145%. In response, China’s retaliatory measures saw its additional tariffs on US goods jump from 0% (excluding product-specific tariffs) to 125%. Amid the escalation, China’s Customs Tariff Commission declared it would no longer respond to additional US tariff hikes. It explained that American exports to China are no longer economically viable under the latest tariffs, underscoring just how severely tensions have deteriorated. Unsurprisingly, the markets have been on a nerve-racking roller coaster over the past few weeks. Initial reactions to President Trump’s “reciprocal” tariffs were clearly negative, although a brief sense of relief emerged after he narrowed the scope of his most recent trade escalations to target China alone.
