Morgan Stanley (NYSE:MS) released a recent report last Friday which points out that India and Japan are the least exposed economies to US trade tariffs due to their robust domestic demand.
The report points out that the export-to-GDP ratio is a most important determinant of how reliant an economy is on trade and it is useful for analysts in gauging the likely exposure of economic growth to external trade pressures.
"India and Japan—these economies have strong tailwinds from domestic demand strength as a offset and relatively lower goods export-to-GDP ratios," the report noted.
The US has imposed a 25% tariff on car imports, set to severely affect Japan and South Korea, as automobile exports to the US account for 7% of their overall exports.
On April 2, the US administration is expected to introduce a strategy for promoting just trade relations. Moreover, it continues to signal imposing sectoral tariffs across sectors including energy, drugs, semiconductors, agriculture, copper, and wood products.
The potential enactment will nearly hit all Asian economies directly either through economy-specific duties or sector-specific duties. However, our greatest concern is still that high levels of policy uncertainty deter capex and trade – hurting the business cycle," Morgan Stanley's report said.
The US has a huge trade deficit of around $245 billion in the automobile industry, including passenger cars, goods transport vehicles, and automobile components (including EV batteries). Asia accounts for about $115 billion—or 47%—of this deficit, with Japan, South Korea, and China being the key contributors.
Among the countries, Japan and South Korea mainly represent the deficits in non-battery automobile parts and automobiles, while the contribution of China mainly comes from exports of EV batteries.
Japanese Chief Economist Takeshi Yamaguchi warned that if the 25% automobile import tariff lasts for a considerable time, with a 15-30% fall in automobile exports from Japan to the US, it might dampen the GDP growth in Japan by 0.2-0.3 percentage points
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