Amid President Donald Trump’s fervor for tariffs and big numbers, the initial focus of his trade war was predictably on economies with the largest dollar trade surpluses with the United States. However, measuring these deficits as a share of trading partners’ economic output reveals that emerging economies in East Asia face greater threats.
The Growing Risk to Emerging Economies
Many East Asian nations have substantial trade surpluses relative to their economies, which have expanded significantly since Trump’s protectionist ‘America First’ policies began eight years ago. These countries risk their growth, domestic investments, and local markets if Washington imposes heavy duties on their exports to the U.S. They also face potential collateral damage from an escalating U.S.-China trade war due to burgeoning trade ties with China.
Emerging Asia could indeed confront a ‘lose-lose’ scenario where they’re caught between non-favorable trade terms from the US and significant disruption from the U.S.-Sino trade conflict.
The “China Plus One” Strategy
In the top 15 countries where America has the largest bilateral goods trade deficits, nine are in Asia. This phenomenon is largely due to the “China Plus One” strategy, where U.S. firms invest in countries intricately linked to China rather than in the country itself. Since Trump’s first term and the onset of the pandemic, this trend has intensified significantly.
The exports of emerging Asian nations to the U.S. now account for 18% of total exports, up from 11% previously. Additionally, their trade relations with China have deepened. According to JP Morgan economists, 45% of emerging Asian countries’ combined exports are now destined for the U.S. and China.
South Korea’s trade surplus with the U.S., as a percentage of GDP, is more than double China’s. Taiwan’s surplus amounts to nearly 10% of its GDP. Thailand and Vietnam stand out as additional risks. Thailand’s trade gap with the U.S. has grown by 343% since 2017, while Vietnam’s has increased by 222%, according to Citi economists. Thailand’s surplus with the U.S. now ranks fifth, surpassing Japan and South Korea.
Moreover, Vietnam’s trade with both the U.S. and China has surged in the past decade. Almost 30% of Vietnam’s exports head to the U.S. and 17% to China, equivalent to 25% and 14% of GDP respectively.
Vulnerability and Retaliatory Risks
Thailand and Vietnam’s significant trade gaps and booming exports don’t translate into the economic clout to effectively counter any U.S. tariffs. Additionally, both countries are exposed to further threats if the U.S.-China trade conflict intensifies. Since both nations have attracted substantial Chinese investment flows in recent years.
The “US Plus One” Response
Contrary to these shifts, China has managed to maintain its global market share by embracing its own strategy, which could be called ‘US Plus One’. China’s exports to emerging markets nearly tripled to 44% of total exports in 2023, from 16% in 2000. Meanwhile, shipments to the U.S. decreased from 21% to 16% of its total exports, according to Morgan Stanley.
Morgan Stanley’s Jitania Kandhari observed: “The rules of trade are being rewritten, but one constant remains: Asia – led by China – is still the center of gravity.”
The Future of Emerging Asia
While Asia—specifically countries like China—still holds the key to global trade, it’s clear that the U.S. continues to wield significant influence in an unfolding global trade war’s initial stages. The economic futures of these emerging economies appear fraught with uncertainties and challenges on multiple fronts.
The dynamic shifts in global commerce underscore the complex and interdependent nature of world economies. For emerging Asian nations, navigating these choppy waters will be crucial to their long-term economic stability and growth.
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