As early as the 1980s, Donald Trump advocated using tariffs to reduce the US’s bilateral trade deficit with other countries. During his first presidential term, Trump imposed 10%-25% tariffs on some US$380 billion of Chinese goods from mid-2018 to late-2019 before reaching a “Phase One” trade deal with China. The trade war he started, which Joe Biden continued, is set to escalate further and spread wider.
During his 2024 presidential campaign, Trump said he would impose a 60% tariff on imports from China and a 10%-20% tariff on all other imports into the US. More recently, Trump has said that he might impose a 25% tariff on Mexico and Canada despite the terms of the United States-Mexico-Canada Agreement (USMCA), an agreement negotiated by Trump’s own administration in 2020 to replace the North American Free Trade Agreement (Nafta).
If the US were to implement a global 10% tariff and a 60% tariff on China, the weighted average US tariff would rise from 3% to 20% on all imports, a level not seen since the early 1940s, says Ronald Temple, chief market strategist at Lazard. This move could end up costing the average US household approximately US$1,700 ($2,311.58) per year, says Temple, citing the Peterson Institute for International Economics (PIIE).
Investors should brace themselves for tariffs to be announced early in the new Trump administration, though in a “staged” manner, says Temple in Lazard’s 2025 outlook. “For example, in the case of textiles from China, the tariff could be over 100% to encourage companies to buy from other countries that are more aligned with the US. In contrast, certain rare earths that are difficult to source outside of China might face much lower tariffs given their importance to the production of a range of products from electric vehicles to wind energy infrastructure.”
Over time, however, investors should consider full implementation of the 60% tariff against China and a 10% global tariff “as a possible bear case scenario”, says Temple.
According to his estimates, US GDP could be reduced by as much as 100 basis points (bps) if these tariffs come to fruition, and US inflation could increase by 100bps or more. Eurozone GDP could fall as much as 100bps under a 10% tariff scenario and China’s GDP could slow by as much as 300bps with a 60% tariff, assuming no offsetting fiscal stimulus policies.
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The other major macro implication of tariffs could be a stronger US dollar. The US dollar has already strengthened “meaningfully” since Trump won the election, but it could appreciate even further in 2025 as the disparate impact of tariffs drives wider interest rate differentials, which then affect foreign exchange rates, says Temple.
Asean within ‘firing range’
Under a maximalist Trump trade agenda — a 60 percentage point (ppt) tariff hike on China and a 10% universal tariff applied over two years — Asia’s cumulative growth may be 1.2ppts lower during his presidency, say Deutsche Bank’s Asia economists.
Vietnam would be more affected than China, and India would be least affected, they add. Asean, in particular, has had an “increased reliance on imports from China”, facilitated by the extension of China’s supply chain into the subregion. “This renders Asean more vulnerable to rising tensions between the US and China.”
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Indeed, Asean could be a “collateral victim” in a US-China trade war, says Nazmi Idrus, head economist at CGS International. “Asean has been the winner of US-China trade tensions since 2018,” he adds, thanks to the region’s role as a conduit for the Chinese supply chain aiming for indirect access to the US market.
China’s trade deficit with the US has been declining since 2018. But more importantly, the US’s trade deficit with Asean is growing, says Nazmi. “Looking deeper, the economies of Vietnam, Thailand, Indonesia and Malaysia are showing significant and rising trade surpluses with the US. If trade deficit is purely the reason for contention, then Asean could be in the firing range.”
Look to Thailand
Still, DBS’s experts think Asean remains attractive. “Asean is likely to benefit more from the China+1 strategy as supply chain diversification becomes necessary amid increasing trade tensions,” say Yeang Cheng Ling, DBS’s chief investment officer, North Asia, and Joanne Goh, strategist.
Asean markets appear to have priced in fewer interest rate cuts, particularly in light of rising yields and a strengthening US dollar. Although these could contribute to Asean’s underperformance relative to the US market, Asean has outperformed China this year and would serve as a diversifier for exposure to the Asia market, supported by strong sectors within the region, they add.
Within Asean, only Thailand and Indonesia will see greater growth between fiscal years 2024 and 2025 ending March 31, according to DBS. While Vietnam is expected to maintain y-o-y GDP growth at an impressive 6.8% in both FY2024 and FY2025, DBS forecasts 2.8% and 3.0% y-o-y growth for Thailand and 5.0% and 5.1% y-o-y growth for Indonesia respectively. Singapore, meanwhile, is forecast to post 3.8% growth for FY2024 and 2.8% in FY2025.
The Thai market saw a modest 0.8% gain in 11M2024. In 1H2024, the main SET Index dropped by 8.1%, weighed down by political uncertainty, weak corporate earnings and significant foreign investor sell-offs. However, it rebounded in 2H2024, rising 9.7% between July and November, fuelled by the installation of a new government, greater political clarity and government stimulus measures, says DBS’s Thailand analyst Chanpen Sirithanarattanakul.
The “China+1” strategy is expected to gain further momentum under the Trump 2.0 administration, as manufacturers look for cost-effective and low-tariff production alternatives. Thailand should continue to benefit from such a trend, says DBS, and they highlight industrial real estate developer Amata Corporation (AMATA) for its “large land bank in strategic locations” and “huge backlog” that should ensure a revenue stream in 2025.
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While investment into Thailand remained lacklustre in 2024, DBS sees a potential investment recovery in 2025. DBS’s preferred picks are commercial bank Bangkok Bank (BBL), state-owned bank Krung Thai Bank (KTB) and construction contractor Ch. Karnchang (CK).
DBS also expects additional stimulus measures from the Thai government in 2025. These include the second and third phases of digital wallet handouts. Here, DBS picks CP All (CPALL), the sole operator of 7-Eleven convenience stores in Thailand.
Finally, tourist arrivals should continue to recover in 2025, supported by expanding airline seat capacity and the government‘s aggressive promotional activities, says DBS, naming stock picks like Airports of Thailand (AOT), Bangkok Dusit Medical Services (BDMS), Central Pattana (CPN), The Erawan Group (ERW) and Minor International (MINT).
Indonesia stock picks
In Indonesia, the main JCI Index was “relatively steady” until May but was sold off in June along with global corrections on the back of the higher-for-longer theme, write DBS’s Indonesia analysts. However, it performed well in 3Q2024 and hit an all-time high at 7,900 in September on the back of rate cut optimism and a weaker US dollar.
To capture the “Trump 2.0 opportunity”, DBS’s top picks are logistics firm AKR Corp (AKRA) for China’s new supply chains, and Alamtri Resources Indonesia (ADRO) and London Sumatra Plantation (LSIP) for energy and commodities, respectively.
DBS also highlights possible domestic growth under “Prabowo-nomics” — or the new Indonesian president’s economic policies to achieve 8% GDP growth while ensuring national security and stability. These policies include free medical check-ups, free school meals and social aid, which could support consumption for the middle- and lower-class segments.
Hence, DBS’s picks are food and beverage producers Indofood Sukses Makmur (INDF) and Indofood CBP (ICBP) for staple stocks. Japfa Comfeed (JPFA), an agri-food company, is also ready to support the free meal programme, says DBS.
DBS also highlights telecommunications services firm Indosat (ISAT) for being Indonesia’s first Nvidia cloud partner. The two firms announced in April plans to build a US$200 million AI centre in Central Java.
Finally, banks still offer “decent earnings growth outlooks”, says DBS. “Our top picks are BCA (BBCA) on strong liquidity to support growth and Bank Jago (ARTO) for the digital lending opportunity.”
Markets to consider
Other research houses are looking at the region with different lenses. HSBC’s equity strategists are “overweight” on mainland China, India and Indonesia; “neutral” on Thailand, Hong Kong, Malaysia and the Philippines; and “underweight” on Singapore, South Korea, Japan and Taiwan.
Nomura’s Asia ex-Japan equity strategists took a closer look at “consistent outperformers” within the region. These are defined as companies with “reasonably high ROEs and earnings growth prospects in 2025, and favourable Bloomberg consensus ratings”. “We found a larger proportion of stocks that managed to consistently outperform in markets such as the Philippines (29%) and India/Indonesia (17% each) — suggesting greater opportunity for alpha generation,” says Nomura.
Within Asean, the companies with the highest “hit rate” — or percentage of times the stock outperformed the local country benchmark index based on annual returns since 2015 — are Indonesia’s Bank Central Asia, the Philippines’ International Container Terminal Services, Thailand’s Praram 9 Hospital and Indonesia’s sporting goods retailer Map Aktif Adiperkasa, film production firm MD Entertainment, property developer Pantai Indah Kapuk Dua and hospital operator Medikaloka Hermina.
Also featured on the list of outperformers are Singapore’s DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC), ST Engineering, CapitaLand Ascendas, Mapletree Industrial Trust , Frasers Centrepoint Trust , Haw Par, Riverstone Holdings and UMS Integration.
