Trade tensions ease, but can Asia sustain export growth?

US President Donald Trump’s recent visit to Asia led to a trade truce with China and the signing of formal trade agreements with several countries, including Japan, South Korea, Malaysia, and Cambodia. These agreements finalised certain tariff rates initially proposed under the reciprocal tariff framework, though some additional concessions were made to individual countries. For instance, South Korea secured a reduction in automobile tariffs from 25% to 15%, similar to what Japan had previously secured. South Korea also obtained zero tariffs for select categories such as aircraft parts and generic medicines. Now, Japan and Korea face harmonised 15% tariffs on pharmaceuticals and automobiles – effectively creating a level playing field between the two.

While the new tariff structure does little to differentiate between countries competing in similar sectors (e.g., Japan vs. Korea or ASEAN vs. intra-ASEAN), the reduced gap between China and its regional peers stands out as a clear strategic win for Beijing.

Beyond tariffs, the agreements also helped resolve key structural issues – particularly around investment commitments from Japan and South Korea into the US. South Korea, for example, has pledged to invest $350bn, similar to what was announced by Trump previously, but the deal confirms that the investments would be phased over time to mitigate pressure on foreign exchange reserves and local currency stability.

Four countries in Southeast Asia – Malaysia, Thailand, Cambodia and Vietnam – pledged to remove trade barriers and provide preferential market access to various US goods. However, what remains unclear is what these countries received in return for signing the deals, raising questions about the net benefit for ASEAN members. ASEAN countries continue to face average tariff rates in the 19-20% range, which are comparatively more punitive.

Notably, the agreements did not include any details on transshipment tariffs – neither on their structure nor on the timeline for potential implementation. This omission leaves a gap in understanding about how re-routed trade flows might be treated under the new framework, especially given past challenges in enforcement.

With the reduction in import tariffs on Chinese goods, the tariff differential between China and the rest of Asia has narrowed. This directly benefits Chinese exports and may reduce the incentive for exporters to re-route shipments through third countries – a workaround that previously complicated enforcement under the reciprocal tariff system.

Looking ahead, while the recent trade agreements signal a de-escalation in tensions, they offer limited assurance that export growth will remain robust. Export data since April 2025 shows that China’s decline in shipments to the US has been nearly offset by increased exports to other global markets – a trend mirrored across much of Asia. This diversification in export destinations is likely to remain a key structural theme.

However, as US tariffs are fully implemented and reflected in trade volumes, a moderation in Asia’s overall export growth appears likely. Countries with strong exposure to AI-related exports may outperform, but for others, the agreements do little to counteract the broader slowdown in trade momentum.