Emerging-market economies across Asia, Latin America and beyond are confronting a sudden escalation of U.S. import duties, prompting a fundamental rethinking of their growth models and trade partnerships. In early April, the Trump administration announced hikes in reciprocal tariffs, pushing U.S. levies on Chinese-origin goods to implicit rates of up to 145 percent and raising duties on other targeted economies to as high as 49 percent in Cambodia, 46 percent in Vietnam and 37 percent in Thailand.
The unprecedented breadth and depth of these measures have already dented forecasts: the International Monetary Fund trimmed its outlook for Asian emerging markets’ GDP growth to just 3.9 percent in 2025, down from 4.6 percent prior to the tariff shock, while global growth projections were cut to 2.8 percent for 2025, compared to 3.3 percent in 2024.
Fiscal and monetary authorities face a dual challenge: cushioning immediate revenue shortfalls for exporters and laying groundwork for a more diversified trade and investment mix. “We see room for rate cuts in Asia given still-moderate inflation, but the overarching need is to provide support to sectors most exposed to tariff headwinds,” noted the IMF’s Asia and Pacific Director, underscoring that without decisive action, the downturn in trade‐dependent economies could deepen.
Betting on a Post-Tariff Winner: South-South Trade Surges
Rather than resigning themselves to a binary choice between Washington and Beijing, many emerging economies are pivoting toward one another—betting that stronger ties within the Global South can unlock new engines of demand and investment. United Nations trade data show that trade among developing countries has risen faster than trade between advanced economies in recent years, and South-South flows surpassed North-North trade in 2023, signaling a historic shift in global commerce.
In March, UNCTAD reported that global merchandise and services trade hit an all-time high of $33 trillion in 2024, buoyed by a 9 percent surge in services exports—nearly $700 billion—and a steady 2 percent rise in goods trade, amounting to roughly $500 billion. Crucially, much of this momentum has flowed through developing-country networks, from ASEAN to Latin America, illustrating the potential for alternative growth corridors outside the traditional U.S.-China axis.
Rebeca Grynspan, UNCTAD’s Secretary-General, argues that accelerating South-South trade “will take on new dynamism because of recent shifts in U.S. trade policy,” and could help buffer developing economies from excessive reliance on either superpower. Financial Times coverage highlights her call for “open regionalism” that deepens ties within emerging markets rather than resorting to protectionist walls.
ASEAN’s Strategic Balancing Act
Southeast Asia stands at the forefront of this recalibration. Malaysia’s former deputy trade minister Ong Kian Ming emphasizes that negotiating a “soft-landing” with Washington need not preclude deeper engagement with partners across the region. Yet vulnerability is acute: Goldman Sachs cut its 2025 GDP forecast for Vietnam to 5.3 percent from a consensus 6.5 percent, while downgrading Malaysia’s outlook to 3.8 percent (from 4.7 percent) and Thailand’s to 1.5 percent (from 2.7 percent) on the back of tariff exposure.
Vietnam—where exports accounted for 87 percent of GDP in 2024—witnessed its first-quarter growth ease to 6.93 percent amid tariff anxieties, compared to 7.55 percent in late 2024. Nevertheless, Hanoi remains undeterred, maintaining an ambitious 8 percent growth target for 2025 and ramping up public investment through a 30 percent surge in government bond sales to finance infrastructure and domestic demand stimuli.
In neighboring Cambodia—due to face 49 percent duties on U.S. imports—policymakers are redoubling efforts to integrate with Vietnam, Thailand and beyond to diversify their manufacturing base and export destinations. Long‐term plans include expanding special economic zones, deepening value-chain linkages and pursuing bilateral trade pacts that lock in tariff-free access within the Global South.
China+1 and Nearshoring: Shifting Supply Chains
Manufacturers chasing tariff relief have accelerated the so-called “China+1” strategy, relocating segments of production to lower-cost Asian economies. Industry surveys show that multinational firms are evaluating factory expansions in Vietnam, Malaysia, Cambodia, India and Mexico—where duty-free or lower-duty status with the U.S. can render a decisive cost advantage.
India, determined to capture a bigger slice of the electronics assembly pie, recently approved a ₹229.2 billion ($2.68 billion) plan to bolster local production of components, offering employment-linked incentives and targeting 92,000 new jobs in telecom, automotive and power sectors. Its flagship Production-Linked Incentive (PLI) scheme has already drawn some $19 billion in private investments, with the government refining eligibility to ensure sustained capital inflows without indefinite subsidy extensions. Analysts predict that India’s push could ultimately wean manufacturers off China reliance, as gross electronics exports climb and domestic capacity expands.
Mexico, for its part, has long been a nearshore haven for automotive and appliance components. As U.S. import duties on Chinese goods soar, Mexican exporters stand to gain share in hi-volume categories, from wiring harnesses to small appliances. The U.S.-Mexico-Canada Agreement (USMCA) further cements tariff-free access for qualifying local content, intensifying the allure of Mexican assembly lines.
Fiscal and Monetary Buffers
In the immediate term, many emerging-market governments are deploying fiscal and monetary tools to cushion the tariff shock. Indonesia has offered temporary tax rebates and expedited customs clearances for exporters rerouting shipments away from China, while the Philippines is reviewing caps on export duties for select agricultural products to preserve competitiveness. Central banks in the region, buoyed by moderating inflation, have hinted at rate cuts to lower borrowing costs for manufacturers facing higher input bills.
Yet economists caution that such measures only buy time. For sustained resilience, emerging markets must cement new trade and investment partnerships, deepen intraregional supply chains and upgrade local value-addition capabilities—transformations that require persistent policy support, infrastructure investment and skills development.
Vietnam’s blend of immediate fiscal stimulus and long-term diversification illustrates the emerging-market playbook in action. Authorities have established a high-level task force to renegotiate tariff carve-outs with the U.S., while simultaneously courting European and Middle Eastern buyers to offset potential American demand dips.
Concurrently, foreign direct investment approvals into electronics, textiles and machinery climbed 12 percent year-on-year in Q1 2025, as global brands accelerated projects already in the pipeline to beat looming tariff deadlines. Domestic policy tweaks—including faster land acquisition, streamlined licensing and enhanced vocational training—aim to ensure that Vietnam’s factories not only survive the tariff shock but emerge more competitive.
Broader Implications and Risks
While the shift toward South-South trade and supply-chain diversification promises long-term gains, it is not without pitfalls. Currency volatility, debt sustainability and inflationary pressures could flare if tariff-induced cost shocks feed into consumer prices. The IMF warns that a prolonged standoff in U.S.-China relations might erode confidence, curb investment flows and trigger capital flight from more fragile economies.
Moreover, structural constraints—such as energy shortages, infrastructural bottlenecks and skill gaps—may limit how swiftly emerging markets can scale up new manufacturing hubs. Development finance institutions are under pressure to mobilize capital for critical upgrades, but accessing affordable long-term credit remains a hurdle for many lower-income nations.
Emerging-market leaders view the current upheaval as a rare catalyst to “rethink, reform and revive” their economic strategies, echoing calls from UNCTAD for a reinvigorated multilateralism tailored to the Global South’s realities. With South-South trade already more dynamic than ever, and nascent regional blocs strengthening market linkages, the bet is that a post-tariff world can yield new champions—countries that convert disruption into durable competitive advantage.
Whether this gamble pays off depends largely on coordination among governments, investors and multilateral institutions to foster resilient value chains, expand market access and promote inclusive growth. For now, the scramble to secure the “post-tariff winner” status is unfolding in real time, as emerging markets deploy every tool at their disposal to rewrite the rules of the global trade game.
(Source:www.forexfactory.com)
The unprecedented breadth and depth of these measures have already dented forecasts: the International Monetary Fund trimmed its outlook for Asian emerging markets’ GDP growth to just 3.9 percent in 2025, down from 4.6 percent prior to the tariff shock, while global growth projections were cut to 2.8 percent for 2025, compared to 3.3 percent in 2024.
Fiscal and monetary authorities face a dual challenge: cushioning immediate revenue shortfalls for exporters and laying groundwork for a more diversified trade and investment mix. “We see room for rate cuts in Asia given still-moderate inflation, but the overarching need is to provide support to sectors most exposed to tariff headwinds,” noted the IMF’s Asia and Pacific Director, underscoring that without decisive action, the downturn in trade‐dependent economies could deepen.
Betting on a Post-Tariff Winner: South-South Trade Surges
Rather than resigning themselves to a binary choice between Washington and Beijing, many emerging economies are pivoting toward one another—betting that stronger ties within the Global South can unlock new engines of demand and investment. United Nations trade data show that trade among developing countries has risen faster than trade between advanced economies in recent years, and South-South flows surpassed North-North trade in 2023, signaling a historic shift in global commerce.
In March, UNCTAD reported that global merchandise and services trade hit an all-time high of $33 trillion in 2024, buoyed by a 9 percent surge in services exports—nearly $700 billion—and a steady 2 percent rise in goods trade, amounting to roughly $500 billion. Crucially, much of this momentum has flowed through developing-country networks, from ASEAN to Latin America, illustrating the potential for alternative growth corridors outside the traditional U.S.-China axis.
Rebeca Grynspan, UNCTAD’s Secretary-General, argues that accelerating South-South trade “will take on new dynamism because of recent shifts in U.S. trade policy,” and could help buffer developing economies from excessive reliance on either superpower. Financial Times coverage highlights her call for “open regionalism” that deepens ties within emerging markets rather than resorting to protectionist walls.
ASEAN’s Strategic Balancing Act
Southeast Asia stands at the forefront of this recalibration. Malaysia’s former deputy trade minister Ong Kian Ming emphasizes that negotiating a “soft-landing” with Washington need not preclude deeper engagement with partners across the region. Yet vulnerability is acute: Goldman Sachs cut its 2025 GDP forecast for Vietnam to 5.3 percent from a consensus 6.5 percent, while downgrading Malaysia’s outlook to 3.8 percent (from 4.7 percent) and Thailand’s to 1.5 percent (from 2.7 percent) on the back of tariff exposure.
Vietnam—where exports accounted for 87 percent of GDP in 2024—witnessed its first-quarter growth ease to 6.93 percent amid tariff anxieties, compared to 7.55 percent in late 2024. Nevertheless, Hanoi remains undeterred, maintaining an ambitious 8 percent growth target for 2025 and ramping up public investment through a 30 percent surge in government bond sales to finance infrastructure and domestic demand stimuli.
In neighboring Cambodia—due to face 49 percent duties on U.S. imports—policymakers are redoubling efforts to integrate with Vietnam, Thailand and beyond to diversify their manufacturing base and export destinations. Long‐term plans include expanding special economic zones, deepening value-chain linkages and pursuing bilateral trade pacts that lock in tariff-free access within the Global South.
China+1 and Nearshoring: Shifting Supply Chains
Manufacturers chasing tariff relief have accelerated the so-called “China+1” strategy, relocating segments of production to lower-cost Asian economies. Industry surveys show that multinational firms are evaluating factory expansions in Vietnam, Malaysia, Cambodia, India and Mexico—where duty-free or lower-duty status with the U.S. can render a decisive cost advantage.
India, determined to capture a bigger slice of the electronics assembly pie, recently approved a ₹229.2 billion ($2.68 billion) plan to bolster local production of components, offering employment-linked incentives and targeting 92,000 new jobs in telecom, automotive and power sectors. Its flagship Production-Linked Incentive (PLI) scheme has already drawn some $19 billion in private investments, with the government refining eligibility to ensure sustained capital inflows without indefinite subsidy extensions. Analysts predict that India’s push could ultimately wean manufacturers off China reliance, as gross electronics exports climb and domestic capacity expands.
Mexico, for its part, has long been a nearshore haven for automotive and appliance components. As U.S. import duties on Chinese goods soar, Mexican exporters stand to gain share in hi-volume categories, from wiring harnesses to small appliances. The U.S.-Mexico-Canada Agreement (USMCA) further cements tariff-free access for qualifying local content, intensifying the allure of Mexican assembly lines.
Fiscal and Monetary Buffers
In the immediate term, many emerging-market governments are deploying fiscal and monetary tools to cushion the tariff shock. Indonesia has offered temporary tax rebates and expedited customs clearances for exporters rerouting shipments away from China, while the Philippines is reviewing caps on export duties for select agricultural products to preserve competitiveness. Central banks in the region, buoyed by moderating inflation, have hinted at rate cuts to lower borrowing costs for manufacturers facing higher input bills.
Yet economists caution that such measures only buy time. For sustained resilience, emerging markets must cement new trade and investment partnerships, deepen intraregional supply chains and upgrade local value-addition capabilities—transformations that require persistent policy support, infrastructure investment and skills development.
Vietnam’s blend of immediate fiscal stimulus and long-term diversification illustrates the emerging-market playbook in action. Authorities have established a high-level task force to renegotiate tariff carve-outs with the U.S., while simultaneously courting European and Middle Eastern buyers to offset potential American demand dips.
Concurrently, foreign direct investment approvals into electronics, textiles and machinery climbed 12 percent year-on-year in Q1 2025, as global brands accelerated projects already in the pipeline to beat looming tariff deadlines. Domestic policy tweaks—including faster land acquisition, streamlined licensing and enhanced vocational training—aim to ensure that Vietnam’s factories not only survive the tariff shock but emerge more competitive.
Broader Implications and Risks
While the shift toward South-South trade and supply-chain diversification promises long-term gains, it is not without pitfalls. Currency volatility, debt sustainability and inflationary pressures could flare if tariff-induced cost shocks feed into consumer prices. The IMF warns that a prolonged standoff in U.S.-China relations might erode confidence, curb investment flows and trigger capital flight from more fragile economies.
Moreover, structural constraints—such as energy shortages, infrastructural bottlenecks and skill gaps—may limit how swiftly emerging markets can scale up new manufacturing hubs. Development finance institutions are under pressure to mobilize capital for critical upgrades, but accessing affordable long-term credit remains a hurdle for many lower-income nations.
Emerging-market leaders view the current upheaval as a rare catalyst to “rethink, reform and revive” their economic strategies, echoing calls from UNCTAD for a reinvigorated multilateralism tailored to the Global South’s realities. With South-South trade already more dynamic than ever, and nascent regional blocs strengthening market linkages, the bet is that a post-tariff world can yield new champions—countries that convert disruption into durable competitive advantage.
Whether this gamble pays off depends largely on coordination among governments, investors and multilateral institutions to foster resilient value chains, expand market access and promote inclusive growth. For now, the scramble to secure the “post-tariff winner” status is unfolding in real time, as emerging markets deploy every tool at their disposal to rewrite the rules of the global trade game.
(Source:www.forexfactory.com)