The US administration announced broad tariffs on key trading partners on early Thursday, expanding the umbrella of reciprocity to include non-tariff barriers including currency dislocations. ASEAN-6 countries face a potential average 27.5% increase in their US tariff rates (ranging from 46% on Vietnam to 10% on Singapore), besides a 26% increase on India. While the scale of increase is larger than our and street estimates, along our vulnerability analysis, Vietnam and Thailand have now been subjected to amongst the highest rates (ASEAN-6: Tariff-ic times ahead). The US National Trade Estimate report on Foreign Trade Barriers, released by the US Trade Representative (USTR) earlier in the week, had elaborated on the tariff and non-tariff barriers imposed by key trading partners. We also note that few sectors have been exempted from these additional reciprocal rates for now, including semiconductors and pharmaceutical exports to the US. Clarity is awaited to assess if sector-specific action on the latter industries will be taken. Vietnam, which faces amongst the highest reciprocal rates, is the most exposed to the US. US accounts for almost 30% of the total Vietnam goods exports, with key segments comprising of electronics items, such as mobile phones, and textiles, garment, and footwear.
The US also announced a 26% reciprocal tax on India, which is more than two and a half times of the existing average tariff differential, likely reflecting the role of non-tariff hurdles. Our initial take on this development, is that a) with the effective reciprocal taxes likely to be implemented on April 9, we will wait to see if India manages to receive some reprieve on this front. We had noted earlier that the authorities have engaged in negotiations with the US in the past few months, including openness to cut or scrap tariffs on part of US imports, and lower tariffs on selected US agri imports but exclude key segments, amidst negotiations on the Bilateral Trade Agreement (BTA), with the initial contours to be released by fall of 2025; b) few sectors including pharma and semiconductors have been exempt from reciprocal tariffs for now, clarity is awaited; c) India retains comparative advantage in specific sectors like electronics manufacturing for now as key competitor countries face higher tariffs. We will elaborate on the impact in a separate note.
Onshore equity markets are likely to face downside risks when trade resumes, with gains in respective regional currencies likely to hit a wall in Thursday’s trade (see our market section for details).
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