Singapore’s STI holds steady amid deeper Asia losses on Trump tariffs
The sharp declines suggest that Asian markets had not fully priced in the possibility of such extensive tariffs, says Charmaine Tan of FSMOne Singapore
[SINGAPORE] US President Donald Trump’s “Liberation Day” tariffs are hitting Asian markets hard as investors go into risk-off mode.
Most markets in Asia plummeted on Trump’s announcement on Wednesday (Apr 2) of a baseline 10 per cent tariff on all countries, as well as additional customised tariffs on specific countries.
But Singapore’s Straits Times Index was an exception, falling only 0.3 per cent at the close. As the country imposes no tariffs on US products under the US-Singapore Free Trade Agreement, it was subject only to the baseline 10 per cent rate.
Japan’s Nikkei 225, which has fallen more than 14.3 per cent from its peak in January, plummeted by around 4 per cent shortly after the market opened. It closed 2.8 per cent down.
Hong Kong’s Hang Seng Index ended 1.5 per cent lower. South Korea’s Kospi Composite Index dropped 2.3 per cent in early trade before closing down 0.8 per cent. Vietnam’s benchmark index dropped 6.7 per cent, while Malaysia’s FTSE Bursa KLCI slipped 0.5 per cent.
Australia, which also faces only the baseline tariff rate, saw the ASX 200 fall by nearly 1.9 per cent before recovering to a 1 per cent tumble at the close.
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Japan has been slapped with an additional customised tariff rate of 24 per cent, while South Korea was hit with a 25 per cent tariff rate. China will face an additional 34 per cent on top of levies imposed earlier this year.
US Dow futures plunged 1,000 points. Meanwhile, gold rose to a record high of over US$3,160 an ounce, as investors flocked towards the safe haven asset on fears of a global slowdown.
Markets in the region had experienced notable slumps in the days leading up to the announcement, reflecting widespread uncertainty towards the impact of the incoming tariffs.
Yet the sharp declines suggest that Asian markets had not fully priced in the possibility of such extensive tariffs, said Charmaine Tan, research and portfolio management analyst at FSMOne Singapore.
“Investors have reacted to the heightened risk of a global trade war, potential economic slowdowns, and increased inflationary pressures from these tariffs,” she said.
Trump’s announcement, which his administration had previously branded a “Liberation Day” for the US, slapped additional country-specific reciprocal tariffs on roughly 60 “worst offenders”.
These include Cambodia with the highest rate at 49 per cent, Vietnam facing 46 per cent and Thailand with 36 per cent.
What’s next for Asian economies?
Trump’s sector-specific tariffs, however, are likely to impart the biggest damage to economies in Asean, with auto tariffs set to take effect at midnight (Eastern Time) on Apr 3, and others to the semiconductor and pharmaceuticals sectors likely to follow.
Lavanya Venkateswaran, senior Asean economist at OCBC, said: “Fragile market sentiments, if prolonged, could dampen business confidence and investments, affecting various sectors beyond just automotives to logistics and shipping.”
Yet despite the announcements bringing certainty to weeks of speculation about the size and scope of Trump’s tariffs, market volatility is likely to continue in the coming months. Analysts expect that the announced tariffs are not set in stone, but are likely to serve as bargaining tools – a strategy previously seen in the Trump administration’s dealings with Canada and Mexico.
Khoon Goh, head of Asia research at ANZ, wrote in a report: “Treasury Secretary Scott Bessent has indicated that there is scope for negotiations by trading partners to reduce the initial tariff rate.”
He added: “The Apr 2 announcement is only the start of a protracted period of bargaining, which adds to the uncertainty.”
At the same time, retaliatory measures from the European Union and China are also likely to bring further volatility to global markets. Head of the European Commission Ursula von der Leyen has indicated a “strong plan” to retaliate against tariffs, but with a preference for negotiation. If Trump further retaliates to such measures, global volatility might continue to deepen into the second half of the year.
Still, all hope is not lost for Asian economies. China’s technology sector resurgence and its efforts to boost consumption may partially offset slower Chinese exports, while retaliatory tariffs on US imports by China may lead to an increase in Chinese demand for Asean exports instead.
But it is unlikely that the same benefits to emerging markets that played out during Trump’s first term will repeat, such as the widespread relocation by manufacturers into economies such as Vietnam.
Alex Wolf, head of Asia investment strategy at JPMorgan Private Bank, wrote in a report: “The fundamental nature of this trade war is different from the first, as the scope is global rather than bilateral between the US and China.”
He noted that the threat of a weaker global trade environment, on top of the reciprocal tariffs, does not bode well for corporate earnings in trade-dependent emerging markets such as South Korea and Thailand.
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