Frontloading effects as US companies stockpiled goods in April and May prior to tariffs have resulted in strong headline exports from Asia. That said, we are seeing early signs of a payback effect with exports now moderating due to higher inventories (see Exhibits 1 and 2). And exports to the US are expected to continue to slow over the coming months.
New export orders across Asia continue to contract amid persistent tariff uncertainty. North Asia, which sits at the higher end of the value chain, faced a sharper dropoff in growth compared to the Association of Southeast Asian Nations (ASEAN), which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. However, this divergence may prove temporary. The interlinked nature of regional supply chains suggests ASEAN could soon experience the same drag. India remains the exception, with Purchasing Managers’ Index (PMI) data showing continued expansion thanks to the country’s rising prominence as an alternative source for goods traditionally supplied by China (see Exhibit 3).
Chinese exports to the world are at highs despite falling exports from China direct to the US. Chinese firms have rerouted goods into ASEAN markets, feeding oversupply, intensifying deflationary pressures, and squeezing domestic producers (see Exhibit 4). They also have made use of the lower tariffs faced by ASEAN countries by transshipping their goods and circumventing US duties. This evasion raises the risk of future clampdowns by the US. Increased imports from China have also had the effect of cannibalizing domestic markets, resulting in slower local manufacturing growth and disinflation, which will impact gross domestic product (GDP) growth.
Within Asian countries, sectoral tariff effects are uneven. South Korea has been hit by auto tariffs while Taiwan’s semiconductor exports to the US have held up due to delays in electronics tariffs. Meanwhile, Vietnam and other ASEAN economies have reported strong headline export growth, largely due to the transshipped Chinese goods (see Exhibit 5).
There is some near-term reprieve as trade talks progress. However, longer-term uncertainty remains, which will continue to weigh on export-reliant Asian economies.
Index Definitions
The Purchasing Managers’ Index (PMI) is an economic indicator of the prevailing direction of a country’s economic trends in the manufacturing and service sectors. It is a diffusion index that summarizes whether market conditions are expanding, staying the same, or contracting by surveying senior purchasing executives at private sector companies.
Li Ting Chan‡
Research Analyst
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