For Asean economies, whether they will be able to weather this new wave of protectionism remains to be seen. The region faces uneven impacts as the US rolls out tariff notifications with adjusted rates ranging from 20% to 40%.
While some countries, such as Vietnam, scored better-than-expected deals, others, including export-oriented economies like Malaysia, Thailand and Indonesia, confront steeper headwinds with significant implications for gross domestic product (GDP) forecasts, monetary policy and equity flows.
Trade gambit a double-edged sword
Trump’s “One Big Beautiful Bill” has added US$5 trillion ($6.41 trillion) in debt ceiling headroom and extended corporate and individual tax cuts while also exempting overtime and gratuities from taxable income. Still, analysts warn that such stimulus will come at a fiscal cost.
See also: Trump says US to impose 30% tariffs on EU, Mexico next month
“The bill won’t materially boost growth but helps avoid a fiscal cliff,” notes David Kohl, Julius Baer’s head of fixed income analyst Dario Messi and chief economist. “With deficits entrenched in the 6% range, fixed income markets have already priced in term premium adjustments.”
The cost will be felt across asset classes. US Treasury bills are expected to rise as a proportion of government debt issuance, potentially tightening short-term liquidity and anchoring yields on the long end.
Aberdeen Investments’ chief investment officer Peter Branner adds: “While this doesn’t derail the risk-on backdrop, stagflation risks are real, and we’ve turned negative on the US dollar.”
See also: Trump threatens 35% Canada tariff, floats higher blanket rates
Front-loading and fallout
The tariff spectre has already shaped 1H2025 export behaviour. OCBC estimates that Asean’s largest economies front-loaded US-bound shipments between October 2024 and May, with increases of as much as US$2.5 billion per month for Malaysia and US$1.5 billion for Vietnam.
But that sugar high comes at a cost. Headline export growth is projected to contract sharply in 2H2025 once tariffs are implemented.
“Malaysia is among the hardest hit,” OCBC analysts Lavanya Venkateswaran, Ahmad Enver and Jonathan Ng warn, citing the tariff hike from 24% to 25% and the removal of prior exemptions for semiconductors — an industry that comprises over 40% of Malaysia’s US exports. The bank now forecasts Malaysia’s 2025 GDP to slow to 3.9% from its prior estimate of 4.3%.
Monetary policy is already pivoting. Bank Negara Malaysia is expected to cut rates by 50 basis points (bps) in 2H2025, with a 25bp move possibly as soon as July 9.
Vietnam
Vietnam stands out as Asean’s outperformer, having negotiated a 20% tariff deal, down from 46%. The country recorded strong GDP growth of 7.5% in 1H2025, underpinned by resilient domestic demand and broad-based sectoral expansion.
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OCBC raised Vietnam’s full-year growth forecast to 6.3% from 5.5%, although it warns of a slowdown to 5.0% in 2H2025.
Vietnam’s deal includes provisions on transhipment tariffs of 40%, reflecting US concerns over China rerouting goods via third countries. “It’s clear the US is targeting supply chain circumvention,” DBS economists and strategists Chua Han Teng, Radhika Rao, Eugene Leow and Philip Wee noted, citing Harvard studies showing up to 16.5% of Vietnam’s exports could involve Chinese inputs.
While Vietnam’s growth momentum and domestic reforms provide a buffer, the real test will come in sustaining foreign investment amid potential friction over tariff enforcement and US scrutiny of rules-of-origin compliance.
Indonesia
Indonesia’s 32% tariff rate remains unchanged despite “comprehensive” offers during negotiations. With the US accounting for only 10% of exports, the direct impact on growth is moderate. OCBC maintained its 2025 GDP forecast at 4.7%, noting that downside risks are largely cushioned by diversified trade flows and resilient domestic demand.
However, activity data for 2Q2025 has been mixed. Government spending plunged by 27.8% y-o-y in April to May, while vehicle sales declined by 6.9%. Finance Minister Sri Mulyani confirmed a wider budget deficit of 2.8% of GDP, up from 2.5% previously. However, tapping IDR85.6 trillion ($6.74 billion) in excess reserves is expected to ease funding concerns.
Bank Indonesia is expected to cut rates by another 25 basis points in 2H2025, with flexibility for deeper cuts depending on currency stability. The central bank’s dovish bias is matched by external optimism as Julius Baer expects Asian credit to remain supported by US rate cuts and strong technicals.
Thailand
Thailand faces a steeper challenge. Its 36% tariff rate has prompted concern from policymakers, including Finance Minister Chaiya Noppadol, who called it “shocking”.
Domestic delays in engaging US negotiators, exacerbated by political instability, a suspended prime minister and coalition infighting, have weighed on Thailand’s bargaining power.
GDP growth is now forecast at just 1.8% in 2025, down from the previously forecast 2.0%. Domestic demand remains weak, with soft consumption, tepid investment, and slower Chinese tourist arrivals. Capital disbursement has also lagged, with only 36.8% of the FY2025 budget spent as of June.
Despite a cumulative 50bp cut in 1H2025, the Bank of Thailand retains room for further easing. “We expect at least another 25bp cut in 2H2025,” the OCBC team notes, even as the central bank remains cautious given high household debt and fiscal constraints.
China
Though China reached a framework deal with the US, underlying tensions persist. While tariffs may settle between 30% and 60%, the agreement is unlikely to resolve longstanding geopolitical and tech-related disputes.
“The deal is a tactical truce, not a structural fix,” Julius Baer cautions. “Longstanding geopolitical frictions remain unresolved, particularly in tech and high-value manufacturing,” they add.
Julius Baer’s economists believe an eventual deal could commit China to increased purchases of US goods, particularly in energy, agriculture and semiconductors, and potentially involve pledges to curb the flow of fentanyl-related products, a priority in Trump’s foreign policy narrative.
However, any resulting baseline tariff rate for China is still likely to settle between 30% and 60%, up from the current 10%, a significant jump with implications for inflation, trade flows, and supply chains.
China’s economy remains weighed down by a confluence of domestic and external pressures. A prolonged property market deleveraging cycle continues to sap household confidence, with developers facing tighter financing and high inventory levels. Consumer sentiment remains tepid despite high levels of household bank savings. While Beijing has rolled out multiple rounds of stimulus, including infrastructure outlays and modest rate cuts, the multiplier effects have been weak.
Aberdeen projects Chinese growth to slow further in 2H2025, exacerbated by the impact of trade friction and ongoing supply chain rerouting.
“China’s export-led model is increasingly shifting toward emerging markets and Brics+ economies,” says Branner, noting that structural decoupling from the US is well underway. “This reconfiguration won’t be seamless, especially given global oversupply and weak demand in Western markets.”
Inflationary pressures in China remain muted. Producer price deflation has persisted for several months due to excess industrial capacity, and consumer price inflation is projected to remain below 1% for 2025.
Fixed asset investment and retail sales growth remain sluggish, and the private sector has yet to regain its pre-pandemic risk appetite.
“Fiscal levers must be pulled more forcefully,” Julius Baer notes, warning that weak growth momentum could jeopardise Beijing’s 5% GDP target for 2025.
FX and credit markets
As currency markets closely track tariff developments, the DBS analysts and strategists expect the US dollar (DXY) index to stabilise in the near term after a 10% plunge in 1H2025. That said, they maintain a bearish longer-term view given the US’s protectionist turn and elevated fiscal deficits.
For Asia-based US dollar (USD) investors, the weak dollar led to wealth erosion in 1H2025 despite decent credit returns. “We recommend maintaining some USD hedges or rotating into local currency bonds,” says Magdalene Teo, Julius Baer’s fixed income analyst for Asia.
In equities, earnings downgrades are widespread, particularly for cyclicals and commodity-linked sectors. Yet, analysts see the potential for upside surprises in the 2Q2025 reporting season. “Lower expectations set a low bar,” says Mathieu Racheter, Julius Baer’s head of equity strategy research. “Focus will be on how corporates manage tariff-related cost absorption, with some drawing down inventories as buffers.”
Commodities and oil
Oil markets are adjusting to rapidly rising output from petrostates, which have moved to unwind production curbs. “We now see Brent closer to US$60 than US$70,” Norbert Rücker, Julius Baer’s head of economics and next-generation research, says. A re-escalation in Middle East tensions seems unlikely for now, which in turn mutes geopolitical risk premiums.
Opec+ unwinding and lacklustre Western demand are not fully reflected in inventory data due to opaque Chinese stockpiles. Meanwhile, US shale activity remains resilient, though pressures on production cost curves are building.
Investment advice
As markets digest the implications of reciprocal tariffs and macro fragility, institutions are urging a globally diversified, risk-managed approach. “Do not overreact to volatility,” Martin W Hennecke, St James’s Place’s head of Asia investment advisory, cautions. “Timing markets can lead to costly mistakes — stay invested, stay disciplined.”
Aberdeen is selectively overweight infrastructure and emerging market debt, citing high carry and supportive monetary dynamics. But it has downgraded private credit exposure, citing default risks and a maturing credit cycle.
Gold remains a favoured hedge amid geopolitical uncertainty and weakening dollar prospects. Meanwhile, equity views are broadly constructive but tempered. “We’re modestly positive on both developed and emerging market equities, but selectivity and valuation discipline are key,” Branner adds.
The global economy stands at a precarious intersection. While headline risks from Trump’s trade policies have been partially deferred, the structural shifts they portend are already underway. Asean’s ability to navigate these challenges will hinge not only on policy agility but also on deeper trade diversification, domestic reform, and monetary resilience.
For now, investors must tread carefully, recognising both the risks of retrenchment and the opportunities born from volatility.
