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The White House has confirmed that reciprocal tariffs will resume, though this is not a surprise to markets and should not trigger excessive market volatility as in April. Much of US trade has already been covered by the rash of trade deals announced previously. In fact, the USD has been building on its gains as tariff uncertainty dissipates, with the DXY rebounding back to 100. What is perhaps much less clear is the impact on US longer-term growth prospects due to tariffs, especially as the rest of the world continues to integrate with more trade.
MYR and THB should see a relief rebound, with US tariffs being set lower than their April 2 levels. Malaysia, Thailand, Cambodia will receive the same 19% tariff rate as Indonesia and the Philippines, which had already struck trade deals with the US. Vietnam’s 20% tariff remains unchanged. In North Asia, Taiwan will face a 20% tariff, compared to 15% for Korea and Japan that have negotiated US investment deals and are also US military allies. The minimum tariff rate remains at 10% for countries that were not named by the White House, including Singapore.
ASEAN’s similar tariff rates mean that countries’ relative investment competitiveness will not be distorted, and that ASEAN currencies as a group will not see significant divergence. US investment into this region should also broadly continue as cost advantages are significant. Still, export-oriented manufacturing investment will be less compelling than before for companies specifically targeting the US market, and there could also be a tightening of transhipment rules given US scrutiny and the threat of receiving a less favourable US tariff rate.
Across G10, the most notable hit is Switzerland, which received a 39% tariff rate—one of the highest tariff rates announced, and even higher than the Apr 2 level of 31%. USD/CHF has bumped up to mid-0.81 level in reaction, and CHF could face selling pressure given risks to Swiss exports to the US, dominated by pharmaceuticals. US-Swiss trade negotiations are still ongoing though, and markets may be careful to watch headlines over a possible deal to lower tariffs.
JPY has also depreciated against the USD, though less so compared to the EUR. BOJ keeping policy rates unchanged yesterday, with Governor Ueda pinning the rise of inflation on supply factors rather than demand, have tempered rate hike expectations and bumped USD/JPY above 150.
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