However, the 90-day scaleback in reciprocal tariffs means that Trump’s tariff policies have not been enforced and while its effects “hasn’t happened yet”, signs are starting to show, says Nomura’s head of global macro research, Rob Subbaraman, at the firm’s Asian Investment Forum held in Singapore from June 3 to 5.
“US imports actually rose very sharply in March. However, the April data shows US imports have declined by US$68 billion [$87.47 billion]. That’s the biggest drop on record. In March, there was a lot of frontloading of imports to beat the tariffs and that led to firms being able to build up their inventory buffers. Only now are tariffs starting to affect imports, so we think it’s only a matter of time before it affects the economy,” says Subbaraman.
For companies, tariff uncertainty means an unknown business environment and this will not only weigh down business capital expenditure decisions, but it will also affect hiring decisions of companies.
Import tariffs will spike costs of business and this leaves companies with two options: either absorb the import tax in their profit margins or pass it on to the consumers. In Subbaranam’s view, companies often lean towards the latter and thus, he expects a re-acceleration in US inflation in the coming months.
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David Seif, Nomura’s chief economist of developed markets, also warns that compared to the first round of tariffs in Trump’s first term, this round of tariffs are significantly higher than what the world has seen in recent history.
“The tariff rates now, which are about 16.6%, are at their highest level since World War Two. I think it is important to note how much different the tariffs that Trump is putting in place right now, compared to anything he did during his first term,” Seif states.
The tariff threat is expected to slow growth in the US economy, with Nomura’s house view forecasting a 0.8% growth in GDP in 2025.
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With the risk of a slowing economy looming over the biggest economy in the world, the Federal Reserve remains stuck between a rock and a hard place as the US central bank works to counter the effects of inflation.
“With core inflation already above the Fed’s target of 2%, we think that weak economic growth, combined with inflation that is moving in the wrong direction, will ultimately cause the Fed to be hawkish, not dovish. That is why our view is that the Fed would not cut (rates) again until December 2025,” Seif says.
Asia in a controlled descent
With the challenges ahead, Nomura expects below-trend growth and below-target inflation in Asia due to payback after export frontloading and weak capital expenditure. However, a nosedive in economic performance is not expected due to good fundamentals within the region.
For China, recent developments in talks between the US and China point towards a reduction in trade tensions between the two.
Just recently, the two countries agreed to a preliminary agreement to work on implementing a framework to de-escalate trade tensions, particularly working towards resolving issues surrounding the shipment of rare earth minerals and magnets from China to the US.
As such, Nomura has revised up its estimates for China’s Q2 and 2025 annual GDP growth forecasts to 4.8% y-o-y and 4.5% respectively.
However, Nomura expects a slowdown in growth in H2 of 2025 to 4% due to payback of export and consumption frontloading; a still-ailing property sector and a strategic decoupling between the US and China.
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The 90-day trade truce has led to significant frontloading and some payback will likely follow after the truce period. Nomura estimates that even with no further tariff hikes, average US tariffs on China will remain hefty at about 42%, which will likely inflict material damage on Chinese exporters.
Additionally, the strategic decoupling between the US and China is expected to intensify as the US plans to decouple from China in items relating to national security such as semiconductors, medicines and steel.
“We expect a sharp drop in export growth from an estimated 6.0% y-o-y in Q2 to minus 2.0% in Q3 and minus 8.6% in Q4. We also expect notable payback to slow retail sales growth from an estimated 4.2% y-o-y to 3.3% in Q3 and 2.9% in Q4,” states Nomura in its Asia special report.
Policy-wise, a temporary easing of tensions in the near term could reduce Beijing’s urgency for additional fiscal stimulus.
However, Nomura believes that China might be compelled to ramp up policy support again in 2H2025 as the effects of the payback materialise along with an intensifying risk of a “double whammy” problem of a declining property and trade sector dragging down the economy.
“To cope with the mounting challenges, we believe Beijing needs to take bolder actions to clean up the mess in the property sector, support consumption in a more sustainable way, fix the fiscal system to better protect business owners and improve its relationships with other economies,” says the investment bank.
Winners and losers
In the wider Asia region, the firm sees India, Taiwan and Malaysia as outperformers in the region while viewing Indonesia and Thailand as regional laggards.
In Taiwan, the strong performance of the Taiwan dollar (TWD) could reduce the profit margins of firms and lower export competitiveness of Taiwan. However, a strong and robust demand in Taiwan’s technological hardware sector is expected. Taiwan produces over 90% of the world’s most advanced chips like Nvidia’s Blackwell GB200 and the upcoming Blackwell GB300.
With the high market share in chip manufacturing and continued growth in AI innovation in the US, it means that there is little substitutability for Taiwanese chips and implies a price inelastic US demand for chips from manufacturers like Foxconn and Taiwan Semiconductor Manufacturing Company.
“Thus, indirect macro effects from weaker US consumer demand and a strong TWD will likely be tempered by sustained AI-led demand, evidenced by the ramp up in Blackwell GB200 shipments,” say Nomura’s economists, who remain above consensus on Taiwan’s 2025 GDP growth at 3.4% compared to consensus estimates of 2.9%.
On the other hand, Indonesia is expected to face slowing GDP growth of 4.7% in 2025 down from 5.0% in 2024. Private consumption continues to remain low as household sentiment remains weak due to concerns over layoffs in labour-intensive industries such as textiles, which could still face competition from Chinese imports.
Additionally, a forecasted widening of Indonesia’s 2025 fiscal deficit ratio of 2.9% of GDP brings the nation close to its debt ceiling of 3.0% of GDP.
With not much flexibility on fiscal reforms, a weak start to tax collections and a soft domestic economy, Nomura believes revenue collections will undershoot the country’s budget, raising fiscal concerns.
Nomura expects the government to revise the fiscal deficit higher around July, similar to last year, which could revive market concerns over fiscal risks.
On the other hand, Malaysia was surprisingly a top-picked market for Nomura for its growth potential. It has maintained a 2025 GDP growth forecast of 4.4%, slightly higher than consensus estimates of 4.0%. This is underpinned by Nomura’s view of the domestic demand in Malaysia remaining robust.
“In particular, we expect strong investment spending to sustain in both private and public sectors, owing to the consistent implementation of structural reforms and public infrastructure projects,” according to Nomura, pointing out that the Johor-Singapore Special Economic Zone will likely provide an additional boost and will prove to be a foreign direct investment (FDI) magnet amid supply-chain shifts, with investment commitments starting to materialise towards the end of the year.
