Key Points
2024 is a good year for Asia economy overall, with factors such as strong AI-related exports, improving exports, coupled with resilient domestic demand due to various country specific reasons. For 2025, potential slower growth of semiconductor demand, slower global growth and particularly tariffs in the incoming Trump administration are likely to bring headwinds for Asia growth. Philippine, Thailand and India could be an exception due to support from fiscal spending and domestic demand. By extension, we expect Trump’s tariffs to lead to weaker Asian currencies. We forecast USDCNY to rise to 7.50 by 2Q2025. Export-oriented currencies such as KRW, MYR, SGD, and TWD will likely be more negatively affected, but PHP and INR will be more insulated. We expect some reprieve for several Asian currencies in 2H2025 on a possibly weaker US Dollar.
#1 Impacts of Trump’s trade policies on Asia economy and FXs. We expect higher tariffs and trade barriers in Asia ahead. Higher tariffs increase on China products will benefit some Asian economies in the long run. However, uncertainty on tariffs would cloud the prospects of Asia manufacturing hubs like Vietnam, South Korea and etc, in near-term. China’s exports rerouting and a cheap CNY would disturb local production and bring deflationary pressure for Asia economy.
#2 Asia’s supply chains to evolve further. Asian supply chains have been undergoing massive shifts, with the US becoming a more important end-market, Chinese and ASEAN substantially increasing vertical integration, and with China’s move up the value chain negatively impacting South Korea. Moving forward, the China-linked supply chain and with that also Vietnam will likely be a focus in Trump 2.0.
#3 The levers to stimulate China’s growth. Amid various cyclical and structural challenges and an incoming Trade War 2.0, fiscal policy likely plays a larger role to stabilize growth. In addition to traditional counter-cyclical measures, structural fiscal policies such as improving people’s livelihood would be important levers in revitalizing domestic demand. Urbanization 2.0 offers another important level for growth.
#4 Varying implications of the semiconductor outlook on Asian FX. The global semiconductor outlook will vary by chip types, impacting Asian FX differently based on their supply chain location. The AI boom will likely cushion TWD and KRW against US tariff hikes, but KRW will benefit less due to slower memory chip growth. A slower tech upturn will also reduce positive spillovers on ASEAN FX, particularly SGD and MYR.
#5 Asian central banks to use variety of tools to manage the pace of FX weakness in Trump 2.0. India has one of the highest willingness and buffer to defend against INR weakness and as such realised FX volatility should remain contained. On the other spectrum, China, Malaysia and Vietnam are likely to rely on an arsenal of tools including exporter and asset repatriation, coupled with managing onshore and offshore liquidity.
#6 Asia’s buffers to avoid currency crisis. Major Asian economies have robust external buffers, with manageable external debt and sufficient foreign reserves to avert a currency crisis. Building economic resilience, close financial monitoring, and reducing USD reliance are key strategies for long-term stability.
#7 Key risks include the magnitude of Trump’s tariffs, how other countries will respond, how effective China’s stimulus will be, coupled with geopolitical and inflation risks.
