Eastspring Investments
Apr 2025 | 5 min read
Summary
The new US tariffs today have raised the US effective tariff rate from 2.2% at the end of 2024 to close to 20% in less than four months. Within Asia, Trump’s tariff shock is likely to weigh on growth in Vietnam, Korea, Japan, and China most, roughly in that order. While more time and clarity are needed to assess the secondary and tertiary effects on economies and sectors, the ensuing market volatility should present opportunities for active investors.
Our Chief Economist, Ray Farris, thinks that these tariffs, if sustained, will likely push US GDP growth down from 2.5% to about 0.6% - 0.8% this year. Tariffs are a tax on consumption and investment that history shows also generate broader welfare losses due to shifts in resources to lower productivity uses. These tariffs also come on top of other fiscal tightening measures of about 0.1% - 0.2% of GDP and rapid curtailment of immigration that is likely to cost US GDP 0.3% - 0.5%.
Additionally, US exports are likely to weaken in response to likely retaliatory measures from US trading partners, particularly China, the EU, and Canada. We assess the risk that these shocks culminate into a larger than estimated hit to the economy that turns into a recession as at least as high as the jump in market pricing of recession risk to just under 50%.
Within Asia, Trump’s tariff shock is likely to weigh on growth in Vietnam, Korea, Japan, and China most, roughly in that order. Effective tariff rates on these countries have increased to 47%, 16%, 20%, and 48% respectively since the start of the year. However, these tariff rate increases need to be scaled by the countries’ exports to the US as a share of their GDP.
More generally, all Asian economies are likely to face significant downward pressure on growth this year for three key reasons:
- The sharp increase in US tariff rates on virtually all Asian economies will reduce US demand for Asian exports directly
- The damage to the US, European, and other major economies from Trump’s tariff war will further depress their demand for Asian exports
- Trump’s decision not to impose punitive reciprocal tariff rates on Latin American or African economies creates incentives for companies to try to relocate production from Asia to these regions. The new effective US tariff rates on most Latin American and African countries are only 10% or lower
Please download the report to read more on the investment implications for Asia.
Interesting reads
The information and views expressed herein do not constitute an offer or solicitation to deal in shares of any securities or financial instruments and it is not intended for distribution or use by anyone or entity located in any jurisdiction where such distribution would be unlawful or prohibited. The information does not constitute investment advice or an offer to provide investment advisory or investment management service or the solicitation of an offer to provide investment advisory or investment management services in any jurisdiction in which an offer or solicitation would be unlawful under the securities laws of that jurisdiction.
Past performance and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the strategies managed by Eastspring Investments. An investment is subject to investment risks, including the possible loss of the principal amount invested. Where an investment is denominated in another currency, exchange rates may have an adverse effect on the value price or income of that investment. Furthermore, exposure to a single country market, specific portfolio composition or management techniques may potentially increase volatility.
Any securities mentioned are included for illustration purposes only. It should not be considered a recommendation to purchase or sell such securities. There is no assurance that any security discussed herein will remain in the portfolio at the time you receive this document or that security sold has not been repurchased.
The information provided herein is believed to be reliable at time of publication and based on matters as they exist as of the date of preparation of this report and not as of any future date. Eastspring Investments undertakes no (and disclaims any) obligation to update, modify or amend this document or to otherwise notify you in the event that any matter stated in the materials, or any opinion, projection, forecast or estimate set forth in the document, changes or subsequently becomes inaccurate. Eastspring Investments personnel may develop views and opinions that are not stated in the materials or that are contrary to the views and opinions stated in the materials at any time and from time to time as the result of a negative factor that comes to its attention in respect to an investment or for any other reason or for no reason. Eastspring Investments shall not and shall have no duty to notify you of any such views and opinions. This document is solely for information and does not have any regard to the specific investment objectives, financial or tax situation and the particular needs of any specific person who may receive this document.
Eastspring Investments Inc. (Eastspring US) primary activity is to provide certain marketing, sales servicing, and client support in the US on behalf of Eastspring Investment (Singapore) Limited (“Eastspring Singapore”). Eastspring Singapore is an affiliated investment management entity that is domiciled and registered under, among other regulatory bodies, the Monetary Authority of Singapore (MAS). Eastspring Singapore and Eastspring US are both registered with the US Securities and Exchange Commission as a registered investment adviser. Registration as an adviser does not imply a level of skill or training. Eastspring US seeks to identify and introduce to Eastspring Singapore potential institutional client prospects. Such prospects, once introduced, would contract directly with Eastspring Singapore for any investment management or advisory services. Additional information about Eastspring Singapore and Eastspring US is also is available on the SEC’s website at www.adviserinfo.sec. gov.
Certain information contained herein constitutes "forward-looking statements", which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "project", "estimate", "intend", "continue" or "believe" or the negatives thereof, other variations thereof or comparable terminology. Such information is based on expectations, estimates and projections (and assumptions underlying such information) and cannot be relied upon as a guarantee of future performance. Due to various risks and uncertainties, actual events or results, or the actual performance of any fund may differ materially from those reflected or contemplated in such forward-looking statements.
Eastspring Investments companies (excluding JV companies) are ultimately wholly-owned / indirect subsidiaries / associate of Prudential plc of the United Kingdom. Eastspring Investments companies (including JV’s) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America.