The potential return of President-elect Donald Trump to the White House in January has raised concerns about a resurgence of trade tensions, particularly with China.
Analysts from UBS have highlighted that the imposition of tariffs on Chinese imports could pose significant risks to the global economy, leading to higher inflation and increased market volatility. However, they assert that Asia is better equipped to handle these challenges compared to the trade war experienced between 2018 and 2019. This resilience is attributed to enhanced supply chain integration, a more robust regional growth outlook, and emerging opportunities in sectors such as artificial intelligence and greentech.
UBS has outlined a scenario in which the Trump administration could escalate tariffs on Chinese imports to as high as 60% by the end of 2026. Such a move is projected to exert a cumulative drag of 200-300 basis points on China’s GDP growth. While this could hinder economic expansion in China, UBS anticipates that a substantial fiscal stimulus, estimated between CNY 5-8 trillion, could mitigate some of the negative impacts, allowing growth to stabilize in the mid-4% range. Furthermore, it is expected that China will respond to these tariffs with targeted retaliatory measures and an increase in non-US trade partnerships, which could help cushion the overall economic fallout.
The broader implications of these tariffs are expected to manifest in a modest slowdown of Asian growth in 2025, particularly affecting smaller, export-dependent economies such as South Korea, Taiwan, and Singapore. These nations, which heavily rely on US technology imports, are particularly vulnerable to disruptions in trade. In contrast, larger markets with a more domestic focus, such as India, Indonesia, and the Philippines, are projected to be less impacted by tariff hikes due to their lower reliance on trade and greater flexibility for monetary policy adjustments.
UBS forecasts that the net tariff drag on overall Asian growth will be limited to no more than 1 percentage point of GDP. This relatively contained impact reflects the region's improved economic resilience and adaptability in the face of external pressures. Despite the anticipated challenges, UBS maintains an optimistic outlook for the long-term prospects of the region, projecting strong earnings growth of 13% in US dollar terms for the index by the end of 2025. This growth is expected to be driven by structural GDP growth, China’s stimulus measures, and declining interest rates both in the US and across the region.
Key growth industries such as artificial intelligence, greentech, healthtech, and fintech are anticipated to outperform in the coming years, with market leaders in Taiwan and India positioned to capitalize on technological innovations. These sectors are likely to attract significant investment as they align with global trends towards sustainability and digital transformation. UBS advises investors to focus on defensive, high-yield sectors in China, including financials, utilities, energy, and telecommunications, which are expected to provide stability amid market volatility.
In the ASEAN markets, sustainable dividend yielders are highlighted as potential sources of stability, offering investors a reliable income stream in uncertain economic conditions. Additionally, UBS continues to favor investment-grade bonds in Asia, noting their resilience due to strong government linkages or state ownership among many issuers. This focus on quality assets reflects a cautious yet strategic approach to navigating the complexities of the current economic landscape.
As the geopolitical landscape evolves and trade policies shift, the ability of Asian economies to adapt and innovate will be crucial in maintaining growth and stability. The interplay between tariffs, fiscal stimulus, and emerging technologies will shape the region's economic trajectory in the years to come, presenting both challenges and opportunities for investors and businesses alike.