Asian Economies Defy Tariff Turbulence, Show Structural Resilience Amid Global Trade Realignment

Economic

Summary:

Despite rising U.S. tariffs and shifting trade dynamics, many Asian economies have demonstrated unexpected resilience, driven by adaptive reforms, strong export performance in technology, and diversified FDI inflows....

Global Trade Uncertainty: A Stress Test for Emerging Markets

A growing body of evidence from institutions like the European Bank for Reconstruction and Development (EBRD), Morgan Stanley, and Verisk Maplecroft suggests that while U.S. tariffs are distorting global trade flows, the consequences are uneven and often less severe than anticipated for Asia. The EBRD recently downgraded global growth forecasts for 2025 from 3.5% to 3.2%, attributing the revision largely to policy uncertainty rather than direct tariff impacts. Trade rules’ unpredictability alone has had a chilling effect on investment and production, with implications for long-term supply chain patterns.

According to EBRD Chief Economist Beata Javorcik, most Eastern European and Central Asian nations have limited direct exposure to U.S. tariffs due to relatively small export volumes to the United States. However, the broader concern lies in indirect effects. Slowing growth in Europe the primary export market for these countries is reducing global demand, which in turn weakens trade-linked economies.

More significantly, global FDI flows are undergoing a fundamental restructuring due to rising geopolitical fragmentation. Investment between sanction-imposing Western countries and Eastern partners like China and Russia has plummeted. In this vacuum, so-called “connector economies” such as UAE, Egypt, Saudi Arabia, and Uzbekistan have emerged as alternative investment hubs. The sharpest beneficiaries are in Central Asia and the Caucasus: countries like Kazakhstan, Kyrgyzstan, Georgia, and Armenia saw export surges to the EU of up to 90% in 2024 via intermediary trade, though total export volume remained 5% below 2023 levels.

Asia’s Resilience: More Than Just Strong Numbers

In contrast to volatility in Europe and Central Asia, Asian economies have surprised analysts with their capacity to withstand trade shocks. Morgan Stanley’s November report highlights that 7 of the top 10 trade surplus economies with the U.S. are Asian, reflecting a deepening economic reliance on American demand. In 2024, exports to the U.S. accounted for 16%–24% of total trade for countries like Thailand, South Korea, Japan, and Taiwan.

Despite underperformance in equity markets Southeast Asia’s index rose just 10% versus a 30% gain in broader emerging markets regional GDP growth has held steady. According to HSBC, factors contributing to this resilience include reduced U.S. threats of extreme tariffs, which lowered investor anxiety, and a weaker U.S. dollar, which gave Asian central banks more room to ease monetary policy without jeopardizing financial stability.

Technology: A Shield Against Tariff Headwinds

A critical differentiator for Asia has been its dominance in high-tech exports. Semiconductor demand, fueled by AI and digital infrastructure, has buoyed manufacturing powerhouses like South Korea and Malaysia. South Korea’s exports rose 6% in Q3 after a 4.2% gain in Q2. Bloomberg’s Asia-Pacific Semiconductor Index surged 17% in November alone, reflecting this tech-driven tailwind.

This growth is not coincidental but structurally embedded. The causal relationship is evident: tariff pressures have accelerated the digital transformation wave, and Asian economies are reaping the benefits of first-mover advantages in advanced manufacturing sectors.

Tariff Pressure Spurs Internal Reforms

Rather than being purely disruptive, U.S. tariff escalation has acted as a reform catalyst. South Korea, for instance, has aggressively overhauled its corporate governance, propelling its main equity index up 70% this year. Many Asian governments have adopted a dual strategy meeting U.S. trade expectations while diversifying diplomatic and commercial partnerships.

This dynamic adaptation highlights a form of causal resilience: external pressure did not cripple these economies but instead triggered proactive domestic change, enhancing long-term competitiveness.

Emerging Markets and Strategic Hedging

Verisk Maplecroft’s assessment of 20 major emerging markets further supports the resilience thesis. Analysts concluded that nations like China, Brazil, and India possess sufficient buffers to withstand broad-based U.S. tariffs. Even directly exposed economies like Mexico and Vietnam have maintained stability through progressive economic policy, improved infrastructure, and political steadiness.

Vietnam, in particular, has shown that despite deep reliance on U.S. trade, structural reforms and strategic engagement with multiple partners have helped offset risk exposure. Brazil and South Africa are following suit by broadening trade portfolios and reducing overdependence on any single market.

China’s Long-Term Position Remains Intact

Despite being at the center of tariff disputes, China retains significant influence over global supply chains. Its control over critical materials like rare earths and its ongoing investments in Southeast Asia complicate any attempt to replace it in the production hierarchy. Additionally, China is fortifying its currency’s role in global transactions. Through bilateral agreements enabling yuan-based trade with countries like Brazil, Argentina, and Chile, and through heavy outbound investment in lithium and copper extraction in Latin America, China is positioning itself to resist future geopolitical shocks.

The U.S. tariff campaign has not dismantled Asia’s trade position it has redirected and reconfigured it. While some economies have experienced friction, the region’s leading exporters have used this moment to innovate, diversify, and recalibrate. Technological advancement, policy agility, and geopolitical hedging have proven vital. The emerging pattern suggests that Asia is not merely weathering the storm it is remapping global trade flows in its favor.

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Gerik

Economic

EU Mobilizes Financial and Political Support Following Vietnam’s Storm Crisis

Amid the devastation caused by recent storms in Vietnam, the European Union has stepped forward with direct financial assistance and a diplomatic show of solidarity. On November 24, during the 6th Joint Committee Meeting on the Vietnam–EU Partnership and Cooperation Agreement (PCA) held in Brussels, EU officials confirmed the disbursement of €850,000 (approximately 26 billion VND) in emergency support to help Vietnam address the aftermath of severe flooding and storm damage. The aid underscores not only the EU’s humanitarian responsiveness but also its long-term strategic engagement with Vietnam as a regional partner in Southeast Asia.

The meeting was co-chaired by Vietnamese Deputy Foreign Minister Lê Thị Thu Hằng and Paola Pampaloni, Acting Managing Director for Asia and the Pacific at the European External Action Service (EEAS). In her remarks, Pampaloni called on EU member states to provide additional assistance, and several nations including Germany and the Czech Republic have already responded positively. An EU emergency shipment from Luxembourg arrived in Vietnam the same day.

Reinforcing the Economic and Institutional Pillars of Cooperation

Beyond immediate disaster relief, the session reiterated both parties’ determination to fully implement the EU–Vietnam Free Trade Agreement (EVFTA) and to accelerate the ratification of the EU–Vietnam Investment Protection Agreement (EVIPA), which is still pending approval from six EU member states. These agreements form the legal and economic backbone of the Vietnam–EU relationship, designed to promote transparency, regulatory alignment, and mutual market access.

The causal link between regulatory integration and investment flows remains a core pillar of EU economic diplomacy, with Vietnam viewed as a stable and promising partner. The EU continues to regard Vietnam as a model country in ASEAN, praising its economic reforms and global integration.

Focus on Science, Technology, and Sustainable Development

The EU and Vietnam agreed to deepen collaboration across emerging sectors, notably green economy, digital transformation, circular economy, sustainable fisheries, infrastructure development, and biodiversity conservation. Scientific research and innovation are increasingly seen as new pillars of cooperation, with both sides aiming to connect EU expertise with Vietnam’s growth ambitions.

Vietnam proposed further engagement through flagship EU programs such as Erasmus+ (education and youth mobility), Horizon Europe (the bloc’s largest R&D funding mechanism), and the Just Energy Transition Partnership (JETP). These platforms offer Vietnam critical financial and knowledge-based resources for transitioning toward low-carbon, high-tech development pathways.

Addressing IUU and Unlocking Fisheries Trade

Deputy Minister Lê Thị Thu Hằng briefed EU officials on Vietnam’s intensified efforts to combat illegal, unreported, and unregulated (IUU) fishing. In requesting the removal of the EU’s “yellow card” warning, Vietnam positioned itself as a responsible actor aligning with global marine sustainability norms. The EU acknowledged these efforts and promised continued technical dialogue to resolve outstanding compliance issues.

This exchange demonstrates a direct cause-effect relationship between Vietnam’s domestic regulatory reforms and the possibility of restoring full seafood market access to the EU, a vital export destination.

Geopolitical Coordination and Global Norms

The strategic partnership also touched on shared geopolitical interests. Both sides reaffirmed their support for multilateralism, upholding the United Nations Charter, and resolving international disputes through peaceful means. They emphasized the importance of maritime freedom in the South China Sea and reiterated the legal significance of the 1982 United Nations Convention on the Law of the Sea (UNCLOS).

The EU expressed hope that Vietnam would actively participate in regional initiatives such as the Global Gateway Strategy and the EU’s Indo-Pacific Cooperation Strategy. These frameworks seek to enhance connectivity, infrastructure resilience, and sustainable development across Asia, particularly in the Mekong sub-region.

The EU–Vietnam relationship continues to evolve into a comprehensive strategic partnership grounded in mutual interests and shared values. From emergency aid in times of disaster to coordinated efforts in trade, innovation, and environmental governance, both sides are building a multifaceted cooperation model. As Vietnam confronts challenges in climate resilience, energy security, and technological transformation, the EU stands ready to offer both financial resources and policy frameworks—cementing Vietnam’s role as a pivotal partner in its Indo-Pacific outreach.

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James Whitman

Economic

Thailand posted its widest trade deficit since early 2023, with a surge in imports of capital goods and raw materials from China, even as exports lost momentum after US buyers frontloaded purchases to beat higher tariffs.

Inbound shipments jumped 16.3% in October, beating even the most optimistic forecast in a Bloomberg survey of economists, while exports grew just 5.7%, missing estimates. As a result, the country's trade balance swung to a $3.4 billion deficit, from $1.3 billion surplus a month earlier, the Commerce Ministry data showed Tuesday.

The wider deficit underscores imbalances in Thailand's trade-driven economy. A sustained shortfall could weigh on overall growth, pressure the baht and complicate monetary policy at a time when the central bank, as well as Prime Minister Anutin Charnvirakul, are trying to support a fragile economic recovery.

Exports are a key driver of the Thai economy, accounting for more than half of gross domestic product. The country's heavy reliance on international trade makes it vulnerable to currency fluctuations and global tariff policies that can erode competitiveness. Thai shipments to the US, the country's largest export market, face tariffs of up to 19%, weighing further on demand.

The baht has gained more than 5% against the greenback so far this year, outpacing most other Asian currencies and making Thai products more expensive. The baht held gains of 0.4% against the dollar after the release of trade data.

The wider-than-expected trade deficit "may be positive as it should help ease pressure on Thailand's current account surplus and the baht strength," Nantapong Chiralerspong, director-general of the Trade Policy and Strategy Office, told reporters.

Exports to the US rose 32.9% from a year ago, the 25th straight month of growth, driven by computers and parts, machinery and steel. Shipments to China grew 9.3% last month, according to the Commerce Ministry.

Source: Bloomberg

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Gerik

Economic

Commodity

Thailand Targets Gold Market To Stabilize Currency

The Bank of Thailand (BoT) has announced plans to tighten regulations surrounding gold transactions as part of its broader effort to address structural imbalances in the country’s financial system. This move reflects growing concerns that surging, unmonitored gold flows are exacerbating volatility in the baht Thailand’s national currency despite the country’s sluggish economic growth.

Governor Vitai Ratanakorn confirmed that the central bank is amending current reporting protocols to capture more detailed data on gold-related payments, particularly those involving cross-border settlements. According to Vitai, the lack of centralized oversight has allowed a significant volume of gold exports to occur under the regulatory radar, especially in cases where payments are made using cryptocurrencies or routed through offshore affiliates.

Gold’s Role in Strengthening the Baht

This policy shift follows BoT’s analysis earlier this year, which identified gold as a key factor behind the baht’s unexpected appreciation. The Thai baht reached a four-year high in September 2025, despite subdued GDP growth. This divergence between currency strength and economic fundamentals raised alarms, as it posed risks to Thailand’s export competitiveness and tourism sector both of which account for nearly 70% of national output.

The causal link here is direct: gold transactions settled in baht compel dealers to hedge their exposure in foreign markets. This hedging, in turn, triggers sizable foreign exchange transactions, amplifying fluctuations in the domestic currency. These transactions are largely invisible to regulators when they bypass Thailand’s banking system.

Regulatory Gaps and Cryptocurrency Concerns

A core concern highlighted by Vitai involves the nature of payment mechanisms used in cross-border trade. If Thai firms export gold to neighboring countries like Cambodia and receive payments in cryptocurrency, these flows evade traditional monitoring channels. The result is a widening blind spot in macroprudential surveillance, undermining BoT’s ability to formulate effective exchange rate interventions.

At present, gold remains largely unregulated in Thailand, and the question of which agency should assume supervisory responsibility is still under discussion. This institutional ambiguity adds another layer of complexity to BoT’s policy execution and reflects broader challenges in governing decentralized financial systems.

Strategic Shift Toward Targeted Intervention

Rather than relying on conventional monetary tools like interest rate adjustments or liquidity injections, BoT is embracing a more granular strategy focused on structural monitoring and integration with the real economy. Vitai emphasized that resolving Thailand’s macroeconomic imbalances now demands targeted regulation, particularly in sectors that significantly influence capital flows and exchange rate dynamics.

This approach is consistent with recent steps taken by the central bank to strengthen financial risk oversight. Earlier this month, BoT also announced tighter supervision of financial intermediaries and pledged to enhance its scrutiny of suspicious capital movements.

Thailand’s effort to tighten control over gold transactions reflects a crucial recalibration in how it manages financial stability. While gold has long been treated as a neutral commodity, its unregulated flow especially when settled in baht or digital currencies has taken on systemic importance. The ongoing regulatory reforms aim to close data gaps, reduce exchange rate shocks, and restore balance to key sectors of the economy. However, the success of these measures will depend on their ability to increase transparency without dampening legitimate trade activity or investor confidence in the Thai financial system.

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Gerik

Economic

Tensions Escalate as Trump Reengages Asian Powers

In a tightly choreographed diplomatic sequence, President Donald Trump held phone calls with Chinese President Xi Jinping and Japanese Prime Minister Sanae Takaichi on the same day. This rare back-to-back communication effort comes as the US faces mounting pressure to navigate intensifying regional tensions over Taiwan, while simultaneously finalizing sensitive trade agreements with China.

The conversation with Xi marked the first direct engagement since a trade truce was agreed upon in South Korea. Although Taiwan had been deliberately excluded from their previous discussions, it emerged as a central point of contention during the latest exchange. Xi invoked post–World War II narratives to frame Taiwan’s reintegration into China as a matter of historical and moral continuity. This framing was aimed at reinforcing the legitimacy of Beijing’s claims, presenting the Taiwan issue as inseparable from the global wartime legacy shared with the US.

Strategic Messaging and Domestic Optics

President Trump, in contrast, publicly downplayed the Taiwan issue in his post-call statement, instead highlighting discussions on agricultural exports and illegal fentanyl shipments. By doing so, he appears to be maintaining strategic ambiguity: offering economic concessions and engagement with China while avoiding a firm public stance that might alienate allies or Congress.

Nonetheless, Trump acknowledged the significance of Taiwan to China during the conversation, a statement reported in the Chinese government’s readout but not reflected in the White House’s messaging. This asymmetry signals the US administration’s cautious maneuvering aiming to advance negotiations without escalating friction over sovereignty and security matters.

Japan’s Role in the Regional Equation

Shortly after the Xi call, Trump contacted Japanese Prime Minister Sanae Takaichi, reaffirming the US-Japan alliance and updating her on the China discussions. Takaichi’s recent remarks about Japan’s possible military involvement in a Taiwan conflict have provoked Beijing, which has since intensified diplomatic pressure by issuing travel advisories, suspending cultural exchanges, and banning seafood imports from Japan.

This chain of events underscores a direct correlation between Japan’s public security posture and China’s retaliatory economic and political responses. It also reflects a growing triangulation where Washington must manage not just its own bilateral relations, but also the frictions between its allies and strategic competitors.

Rare Earths and Trade as Leverage Points

A central theme underpinning Trump’s diplomacy is the ongoing rare earths negotiation. China and the US are seeking to finalize agreements on critical mineral exports essential to high-tech manufacturing. The economic stakes are considerable, as these materials fuel sectors ranging from semiconductors to electric vehicles.

Treasury Secretary Scott Bessent previously indicated optimism that a rare earths framework could be reached by Thanksgiving. This goal reflects a causal relationship between diplomatic de-escalation and commercial progress: smoothing geopolitical tensions directly facilitates breakthroughs in economically strategic sectors.

However, any renewed flare-up over Taiwan threatens to derail these delicate arrangements. Beijing has made it clear that US ambiguity on Taiwan independence is no longer acceptable and has urged Washington to shift from a neutral “non-support” stance to a firm “opposition.” This shift, if agreed to, would have wide-ranging implications not only for US credibility in the Indo-Pacific but also for Taiwan’s security environment.

Risks of Strategic Overreach

While the administration attempts to preserve economic momentum, critics argue that the underlying dynamics reveal structural weaknesses. Beijing expects the US to control or moderate its allies’ Taiwan-related moves, viewing these states as falling under Washington’s strategic umbrella. However, such assumptions place Washington in a precarious position, as it risks alienating allies if it appears too conciliatory toward Beijing.

This tension between alliance maintenance and strategic competition is particularly evident in the Taiwan context. If the US is perceived as compromising Taiwan’s status for trade gains, it may erode trust among regional allies, while failing to secure meaningful concessions from Beijing in return.

Trump’s twin outreach to Xi and Takaichi reveals a calculated diplomatic balancing act designed to advance US economic interests while containing geopolitical risks. Yet the evolving Taiwan issue remains a flashpoint that could disrupt even the most carefully managed truce. The outcome of these engagements will likely hinge not only on trade negotiations and rare earths exports, but also on how deftly the US can continue to walk the tightrope between reassurance and resistance in a region defined by historical memory, economic interdependence, and fragile peace.

Source: Bloomberg

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Samantha Luan

Forex

Economic

The yen looks set to appreciate nearly 10% against the dollar in the coming months if the Federal Reserve delivers back-to-back rate cuts amid growing signs of a US economic slowdown, Morgan Stanley strategists said.

The dollar-yen is detached from fair value now, and if that relationship returns, the cross is seen declining in the first quarter of 2026 as falling US yields may drive down the fair value, strategists including Matthew Hornbach wrote in a note dated Sunday.

"Japanese fiscal policy settings meanwhile are not especially expansionary," they said, and expect renewed downward pressure on the yen in the second half of next year as the US economy recovers, reviving demand for carry trades.

The bullish yen call comes despite the currency's recent weakness, driven by concerns that Prime Minister Sanae Takaichi's spending plans will worsen Japan's fiscal health and by fading expectations of a near-term Bank of Japan rate hike. The yen has slumped 5.6% against the dollar this quarter, making it the worst performer among Group-of-10 currencies.

Morgan Stanley forecasts the dollar-yen pair to fall to around 140 in the first quarter of 2026, before rebounding to about 147 by year-end. The yen traded at 156.67 to the dollar at 11:51 a.m. Tokyo time.

With the yen hovering near the 157-per-dollar level, investors are increasingly weighing the risk of an official intervention in the market. Finance Minister Satsuki Katayama and other officials have recently expressed concerns over the currency's weakness, with Katayama specifically mentioning intervention as an option — though her comments so far have had only limited market impact.

Japan's growth minister Minoru Kiuchi said earlier Tuesday that the government is watching currency movements, including speculative activity, with a high sense of urgency.

On the rates side, Morgan Stanley expects Japan's sovereign yield curve to bull-steepen in the first quarter of 2026, driven by the US slowdown and easing fiscal concerns at home. The bank maintains recommendations for outright longs in 10-year Japanese government bonds, a yield curve steepener on 10- and 30-year JGBs, and a short position in 30-year JGB asset-swap spreads in the near term.

Source: Bloomberg Europe

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Samantha Luan

Political

Economic

Japan's Prime Minister Sanae Takaichi said she spoke with US President Donald Trump at his request, and that he briefed her on his phone call with Chinese President Xi Jinping and the latest state of US-China relations.

The two leaders reaffirmed the importance of close cooperation between the US and Japan, Takaichi said on Tuesday following her call with Trump, as a spat between Japan and China continues over her comments on Taiwan earlier this month. Takaichi was responding to a question from a reporter asking whether they discussed Taiwan.

"We've been able to further confirm the close relationship between the US and Japan following President Trump's recent Japan visit," Takaichi told reporters. "He told me I'm a very close friend and that I could call him any time."

The flurry of calls came as Japan and China continue to spar over Takaichi's comments on Nov. 7 where she said that if China fought to take control of Taiwan, it could be considered a "survival-threatening situation" for Japan, raising the theoretical possibility that Japan could deploy its military with other nations. So far the economic impact has been relatively limited, but China has advised its citizens to avoid traveling to Japan, and for students already there to exercise caution.

In a letter to the United Nations this week, Japan criticized an earlier missive from China as mis-representing the nature of remarks Takaichi made on Taiwan, saying Beijing's letter was "inconsistent with the facts and unsubstantiated."

"China's assertion that Japan would exercise the right of self-defense even in the absence of an armed attack is erroneous," Japanese Ambassador to the UN Kazuyuki Yamazaki wrote in a letter to UN Secretary-General Antonio Guterres dated Nov. 24.

Trump and Xi held their first talks on Monday since agreeing to a tariff truce last month, where they discussed trade, Taiwan and Russia's invasion of Ukraine. The US president said he agreed to visit Beijing in April, and that he had invited Xi for a state visit next year. Takaichi also said Tuesday that she gave her thoughts on the US's efforts on achieving peace in Ukraine.