Venkatachalam Anbumozhi is a senior research fellow for Innovation at the Economic Research Institute for ASEAN and East Asia (ERIA). Supplied
In a sweeping attempt to reassert American economic dominance, US President Donald Trump announced a new wave of punitive tariffs on imports from virtually all trading partners – tariffs that spare no one and threaten to upend the post-war international order the US itself helped to build.
Under this plan, China faces a 54% tariff on all exports to the US, followed by Cambodia (49%), Vietnam (46%), Sri Lanka (44%), Bangladesh (37%), Thailand (36%), Indonesia, and Taiwan (32%), India (29%), South Korea (25%) and Japan (24%). These “tariffs” are said to be based on non-reciprocal trade practices such as discriminatory taxes, subsidies, regulatory barriers and currency manipulation – measures Washington claims have disadvantaged American firms.
Crucially, the plan imposes a minimum 10% tariff on all countries exporting to the US, introducing a wave of global uncertainty. Stock markets reacted swiftly: US futures dropped and Asian shares tumbled. The IMF has already warned of potentially devastating consequences for global trade – fueling inflation, job losses and possibly triggering a global recession.
At first glance, imposing tariffs may seem like a patriotic way to protect domestic industries and jobs. For a short while, it can appear effective. But in reality, such protection often leads to complacency.
Industries shielded by tariffs lose incentives to innovate and adapt. Worse still, tariffs almost inevitably provoke retaliation, escalating into trade wars that hurt everyone. Artificially inflated prices due to import duties prop up inefficiency. Eventually, consumer demand declines, markets shrink, businesses fail and jobs are lost on all sides. The coming months will reveal just how much damage this tariff war will inflict – not only on the US economy but globally.
Many governments instinctively respond with reciprocal tariffs, believing it to be the right or only course of action. China, the EU, Canada and Mexico have all threatened retaliation, and several are scrambling to strike last-minute deals with Washington to avoid sanctions. Yet it is worth questioning whether retaliation is the best or only viable response.
ASEAN and other Asian economic policymakers should bear in mind that the cost of these tariffs will fall largely on US consumers. Despite the Trump administration’s claim of enforcing “reciprocal tariffs” to reclaim bargaining power, the data tells a different story. In 1940, the US accounted for around 40% of global trade. In 2022, that figure had dropped significantly, with only 13% of global exports destined for the US. Today, roughly 87% of the world’s merchandise trade takes place outside the US.
Of course, there are exceptions – Caribbean nations send up to 85% of their exports to the US, and over 75% of Canada’s and Mexico’s exports go there. But most countries, especially in Asia, trade far more with regional partners. Across 160 countries with available data, the US share of exports averages 11.4%, with a median of just 4.7%.
For India, China and ASEAN nations, the US accounts for only 18%, 16% and 19% of exports, respectively. Ironically, average import-weighted tariffs on US exports to these countries are already lower than the “reciprocal” tariffs now being proposed by the US. This suggests the “fair trade” argument is more a negotiating tactic than an economic strategy.
While the impulse to retaliate is natural – and sometimes politically necessary – it may not be the smartest move, especially for economies deeply integrated into global supply chains. Game theory tells us that tit-for-tat retaliation can stabilise cooperation in some situations, such as the Prisoner’s Dilemma. But in this case, mutual escalation only deepens economic harm – the exception being selective trade protection measures such as the EU Cross Border Adjustment Mechanism (CBAM), which is a green growth strategy.
This is not to say that countries like Cambodia or Vietnam are powerless vis-à-vis the US. They have other tools beyond trade policy. For example, governments could tax the profits of US multinationals or introduce environmental levies on new US investments that fail to meet ESG (Environmental, Social and Governance) standards. Such strategies not only deter poor investment practices but also generate domestic revenue and promote sustainable development.
Still, not every country can shield itself from the fallout. The heavy concentration of global supply chains in Asia – particularly in electronics and automobiles – means disruptions will be felt substantially across ASEAN and East Asia. That said, tariffs disproportionately affect small businesses and consumers more than they do governments or large firms. So, retaliatory trade policies are not always the optimal response.
Strategic, targeted countermeasures – like those employed by China – may be necessary, but they should be limited. A better approach would be to remain calm and focus on strengthening regional integration and economic resilience. After all, the vast majority of global trade – 87% – does not depend on the US.
Rather than entering into a tariff war, ASEAN and Asian economies should prioritise reducing internal barriers to trade, enhancing regional cooperation, and investing in building resilient supply chains.
The Covid-19 pandemic proved that Asian firms adapt quickly to shocks – often faster than governments. Now is the time to deepen ASEAN and East Asian economic integration – not only in goods but also in services and digital trade.
World Bank and WTO data show that exports of green technologies and digitally delivered services are growing faster than any other trade segment. ERIA research suggests that mega trade agreements such as the Regional Comprehensive Economic Partnership (RCEP), which address behind-the-border issues, are particularly effective in promoting trade in services. In short, policymakers should focus less on retaliation and more on reforms that improve the business environment, logistics and cross-border infrastructure.
Governments should support next-generation reforms – such as supply chain resilience, green logistics and digital public infrastructure – while companies must rethink their strategies to become more agile and sustainable. Embracing low-carbon, circular models of production could not only reduce manufacturing costs but also open new market opportunities.
In the face of US protectionism, ASEAN and Asia must keep their cool. The US is now a prisoner of its own policies. A global trade war in the 1930s intensified the Great Depression, and history need not repeat itself. Investor confidence is fragile, and the best way forward is steady, sensible reform – not retaliation.
The good news? If Asian economies stay calm, the worst of the damage can still be avoided. The burden of these tariffs will fall most heavily on the US economy. For everyone else, the smartest move is to carry on with meaningful domestic reform, strengthen regional ties and let the numbers speak for themselves.
Venkatachalam Anbumozhi is a senior research fellow for Innovation at the Economic Research Institute for ASEAN and East Asia (ERIA). The views expressed are the author’s own and may not be regarded in any circumstances as stating an official position of ERIA.
