Trump tariff shockwaves already buffeting Asian shores
Korean data shows shipments falling 5.2% so far in April as Trump’s trade war starts to sink Asia’s export-geared economies
TOKYO – The sudden downshift in South Korea’s exports leaves little doubt about the extent to which Asia is in harm’s way amid Donald Trump’s tariff tantrum.
In the first 20 days of April, South Korea’s overseas shipments fell 5.2% year on year — the mirror image of the 5.5% rise for the full month of March. US-bound exports plunged by 14.3% in the first 20 days of April.
It’s an early glimpse of the collateral damage to come as the most protectionist US president in more than a century rocks Asia’s export-reliant economies. And it could be an omen of greater-than-feared pain to come.
South Korea often acts as an early-warning system for global inflection points. Its sizable, open economy is on the front lines of high-tech export sectors susceptible to zigs and zags in demand patterns. And at the moment, South Korea is signaling that the Trump 2.0 era is about to do serious damage to economies from China to Indonesia. And the US, too.
There are also fears that things are about to get even more chaotic as Trump aims his revenge-tour ire at the US Federal Reserve, America’s most respected institution globally.
Trump 1.0 certainly mixed it up with Fed Chair Jerome Powell. Soon after Trump’s hand-picked Fed leader took the helm in February 2018, Trump had buyer’s remorse. He criticized Powell early and often, even mulling ways to remove him.
This time, Trump means action. Along with calling Powell a “loser” and “Mr. Too Late,” Trump is making clear that he might fire Powell at any moment. That a president can only fire the Fed’s chair for “cause” isn’t slowing Trump World down.
Might cratering world markets give this White House pause? The S&P 500 fell another 2.4% on Monday, extending this year’s loss to 12.3%. And on the same day, The Wall Street Journal’s editorial page dubbed it “The Fire Jerome Powell Market Rout.”
“Were Powell to be fired, the initial reaction would be a huge injection of volatility into financial markets, and the most dramatic rush to the exit from US assets that it is possible to imagine,” says Michael Brown, a senior research strategist at trading services firm Pepperstone. “Lower, much lower, equities; Treasuries sold across the board; and, the dollar falling off a cliff.”
The Fed’s much-vaunted independence coming under threat “would see investors across the globe selling every single US-based asset that they have, and also poses the genuinely scary prospect of upending the entire way in which the global financial system operates. If this were to happen, then the reserve status of the dollar, and the value of Treasuries, would be wiped out, probably forever in both cases.”
Brown speaks for many, though, when he worries the damage “might already be done.”
Krishna Guha, vice chairman of Evercore ISI, adds that “risk to Fed independence is negative for all major US asset classes and provides a partial foretaste of what might come if President Trump – who again tweeted his demand for preemptive Fed rate cuts – were to actually try to fire Powell.”
Guha notes that “we still think, more likely than not, Trump will not actually try to fire Powell and will instead blame him for the tariff-led downturn ahead. But the risk is enough to move markets.”
It’s hardly promising that “the price of gold registered another record high today, overcoming yet another periodic round of profit-taking by some tactical traders,” observes Mohamed El-Erian, chief advisor at Allianz. “This, as it benefits from the tailwind of slow and steady diversification away from the dollar by some foreign central banks and others.”
Given today’s “extremely rare” combination of lower US bond prices, stocks and the dollar sliding simultaneously, as Guha puts it, the reaction to Powell’s firing could be greater than markets understand. These dynamics, he says, “indicate higher risk premia is being required to hold US assets. Trump moving to axe Powell “would manifest in a shift from recession to stagflation trades.”
When 2025 began, few in Asia had the “Trump trade” being to sell America on their Bingo cards. But as this stark reality sets in, the best-laid plans of policymakers from Seoul to Beijing to Tokyo are being upended in real time.
Korean officials are as disoriented as any as international chaos collides with political uncertainty at home. Yoon Suk Yeol’s leaving the presidency on April 11, post-impeachment, merely signaled the beginning of a political power struggle in Asia’s fourth-biggest economy ahead of the June 3 election.
This vacuum couldn’t be timed any worse. South Korea, notes Frederic Neumann, chief Asia economist at HSBC, faces “sputtering” growth drivers both externally and internally, adding to the risk that Korean GDP “stalled” in the first quarter. Already, Neumann says, Trump’s tariffs are “pulling down GDP growth and investment.”
South Korea, Neumann says, “will continue to face headwinds for the remainder of the year from likely slowing growth in key economies, including the United States, Europe, and China.”
Fitch Ratings analyst Heakyu Chang observes that the “cyclical and structural challenges faced by Korea’s competitive and evolving banking system include domestic political turmoil and a global trade war, which have hindered business investment and weakened consumption since the fourth quarter of 2024, as well as subdued economic growth, falling interest rates, high leverage and an aging population.”
These are the pre-existing conditions Korea carried into Trump’s trade war. Following a 10% tax on imports of metals, Trump slapped a 25% tariff on autos and another 10% on all other shipments. Korea faces a 25% reciprocal tariff once Trump’s 90-day cooling-off period ends.
That risk has Korean Finance Minister Choi Sang-mo and Industry Minister Ahn Duk-geun in Washington this week to begin trade negotiations with Trump World.
The auto tariff is already hitting Korea hard. Last year, Trump’s economy accounted for nearly half of Korea’s US$71 billion of vehicle exports. “The overall export momentum is weak, with growth slowing in April due to deteriorating trade conditions after expanding slightly in March,” Bank of Korea Governor Rhee Chang-yong told reporters last week.
Japan has its own headwinds to overcome, making life miserable for Prime Minister Shigeru Ishiba and Bank of Japan Governor Kazuo Ueda.
The only thing falling faster than Ishiba’s approval rating — 27.6% at last check — are the odds that the BOJ will be raising interest rates in the months ahead. Just a week ago, many economists thought the BOJ would tighten again at its April 30-May 1.
But “the deteriorating outlook for the economy throws a wrench into its rate hike plans,” says Stefan Angrick, Head of Japan at Moody’s Analytics.
One big problem for trade-reliant Japan is the haphazard way in which Trump is conducting his tariff policies. Torsten Sløk, chief economist at Apollo Global Management, says that the “tariffs have been implemented in a way that has not been effective, and there is now a 90% chance of what can be called a voluntary trade reset recession.”
The yen, meanwhile, is up nearly 11% so far this year, threatening Japan’s export engine. “We believe dollar weakness will continue,” says Win Thin, a managing director at Brown Brothers Harriman.
A big fear in Tokyo is that, along with trashing the Fed’s credibility, Trump might move to weaken the dollar. Japan, says Citigroup currency strategist Osamu Takashima, would be a top target if Trump World engineers a dollar devaluation.
“At this point, we do not see a ‘Mar-a-Lago Accord’ as a concrete risk,” Takashima notes. “However, countries such as Japan, which have sizable foreign currency reserves and whose currency is undervalued, would tend to be the target in this case.”
Overall, Angrick says, “the BOJ’s path just got a lot trickier. The deteriorating outlook for the economy throws a wrench into its rate hike plans. We still think the bank will press ahead with a rate hike in June, unless the economy takes a sharper turn south. But the broader picture has flipped. After months of worrying that the BOJ might fall behind the curve on hikes, the bigger risk now is that it tightens into a downturn. Buckle up.”
Then there’s China. Last week, President Xi Jinping’s government agreed to sit down with Trump’s trade negotiators with a few preconditions. So far, Team Xi has rebuffed Trump’s demands for a series of anticipatory concessions. China also goes in armed with a solid 5.4% year-on-year growth rate in the first quarter.
Team Xi has demonstrated it’s willing to live with considerable pain to avoid giving away the store to Trump’s White House. China has considerable fiscal and monetary space to support Asia’s biggest economy, even with Trump hiking tariffs on all Chinese goods to 145%.
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Beijing is also proving to be a worthier sparring partner than Trump probably expected. Case in point: reports that Beijing is prodding trading partners not to cut bilateral trade deals with Washington or slap “secondary tariffs” on imports coming from specific countries with close China ties.
China, meanwhile, has steadily redirected its trade away from the US to Southeast Asia, Global South nations and Europe.
But the “damage from the trade war will show up in the macro data next month,” says Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, adding that the “high frequency indicators suggest exports have slowed sharply in the region.”
That’s why economist Lisheng Wang at Goldman Sachs thinks the “urgency for more policy easing is on the rise and fiscal expansion will likely do most of the heavy lifting to stabilize growth, though this should be still insufficient to fully offset the severe external shocks.”
There’s also a question about whether slowing growth among the Association of Southeast Asian Nations economies and the rest of the Global South might complicate China’s export diversification strategy. Trump-generated shockwaves are coming for these economies, too. So are higher global interest rates as Trump meddles with the Fed and his tariffs provoke the so-called “bond vigilantes” to act.
East Asia’s economic miracle was born of – and sustained by – exports to the West. Though China has made important strides in weaning itself off the US consumer, the transition won’t necessarily be smooth. Losing US export markets will change dynamics for everything from local consumption to tourism to the health of banks for Beijing and other governments across Asia.
“China’s economic policy challenges, including its efforts to counter deflationary pressure and control financial leverage, will be heightened by the intensifying trade war with the US, potentially influencing issuer credit ratings,” says Fitch analyst Duncan Innes-Ker.
Innes-Ker notes that “we believe domestic demand is likely to become the key driver of China’s growth again and domestic deflationary pressures may be exacerbated. This reinforces our belief the authorities will deploy sustained fiscal stimulus to support growth, weakening public finances.”
With Korea flashing red, Japan slowing down and China’s exports in unprecedented jeopardy, the Trump 2.0 shockwaves are only just beginning in Asia.
Follow William Pesek on X at @WilliamPesek