Malaysia, Thailand could take biggest hits to growth in Asean from tariff impact: analysts

[SINGAPORE] Malaysia and Thailand are the economies in Asean that are set to take the biggest hits from tariffs announced by US President Donald Trump on Monday (Jul 7), according to analysts.

Trump announced tariff rates on 14 countries, and also pushed back the date when tariffs are set to take effect – to Aug 1. His announcement came ahead of a 90-day pause that was to end this week.

In April, Trump announced “Liberation Day” tariffs for the US’ trading partners but lowered them to a flat 10 per cent for the duration of the pause.

On Monday, he started sending letters out to trading partners but indicated he was going to continue negotiations. For Malaysia, the tariff rate was increased by 1 per cent from the 24 per cent announced in April. It stayed the same for Thailand at 36 per cent.

The tariffs announced affect 14 countries, of which nine are in the Asia-Pacific: Malaysia, Thailand, Indonesia, Cambodia, Laos, Myanmar, Bangladesh, Japan and South Korea.

So far, only deals with the UK and Vietnam have been reached.

OCBC economists said: “The growth impact following this announcement, if implemented on Aug 1 with no further adjustments to the tariff rates, would suggest that Malaysia’s economy takes the biggest hit relative to our current forecasts.”

“Malaysia’s unique hit of higher tariffs of 25 per cent from 24 per cent is unexpected. While the official letter from the US is clear that this is not the end of the road for negotiations, the offerings from the Malaysian side could become more constrained,” they added.

OCBC lowered its 2025 GDP year-on-year growth forecast for Malaysia from 4.3 per cent to 3.9 per cent, and from 4.3 per cent to 3.8 per cent for 2026.

“Thailand is next in line, and we lower our 2025 GDP growth forecast to 1.8 per cent from 2 per cent,” it said.

OCBC explained that the hit to growth is more significant for Malaysia because it assumes that all exemptions following the April tariff announcement for semiconductors are no longer applicable. That applies to 43.6 per cent of exports to the US by OCBC’s estimates.

“Notwithstanding, all exports to the US, which are primarily electronics and electrical appliances, are now exposed to tariff risks,” it said, adding that the US is one of Malaysia’s largest trading partners, accounting for 13.2 per cent of total export share in 2024.

Global market intelligence provider BMI, a unit of Fitch Solutions, also said that Thailand, Malaysia and Cambodia will be the worst hit by the latest tariffs.

BMI carried out its forecast based on three different scenarios, where it varied the degree that tariffs would be passed on to US consumers via higher prices, as well as shifting demand from American consumers due to price changes. It found that in all three scenarios, these three countries suffered the worst impacts to their GDP growth.

The impacts vary from a hit of between 0.15 percentage point (pp) and 1.72 pp to Malaysia’s GDP growth; to a blow of 0.13 pp to 1.5 pp to Thailand’s; and to a 0.74 pp to 8.29 pp hit to Cambodia’s.

US goods imports from Thailand totalled US$63.3 billion in 2024, up 12.5 per cent from 2023, indicated the US Trade Representative office. The US goods trade deficit with Thailand was US$45.6 billion in 2024, an 11.7 per cent increase over 2023.

Imports from Malaysia were US$52.5 billion in 2024, up 13.7 per cent from 2023. The US trade deficit with Malaysia was US$24.8 billion in 2024, a 7.6 per cent decrease over 2023.

US imports from Cambodia were US$12.7 billion in 2024, up 9.3 per cent from the year before. The US goods trade deficit with Cambodia was US$12.3 billion in 2024, a 9.4 per cent year-on-year increase.

Meanwhile, Vietnam appears to have the relatively better deal among countries in Asean, analysts said. Its tariff rate has been negotiated down to 20 per cent – from the initial 46 per cent rate – but there is a 40 per cent levy on transhipments through Vietnam from third countries.

OCBC in the Tuesday note said that by contrast, it is raising its 2025 GDP year-on-year growth forecast for Vietnam from 5.5 per cent to 6.3 per cent.

Impact on markets, inflation

Analysts also warned on Tuesday that the risk of higher inflation will return if tariffs stick around – as opposed to it being just a negotiation tactic by Trump.

“It’s probably time to start pricing back in the trade risks that were priced out far too quickly… Trump isn’t chickening out, and inflation is knocking on the door,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“One reason why the tariff-led price pressures were initially contained is that many companies chose to swallow the costs while waiting to see if the tariffs were just a negotiation tactic. But if the tariffs are here to stay – and are constantly changing – businesses will have no choice but to (adapt their pricing strategies),” she added.

Citing data from Goldman Sachs, she said companies are set to pass on 70 per cent of the tariff costs through higher prices.

Arif Husain, head of global fixed income and chief investment officer at T Rowe Price, expects the effects from the tariffs to push inflation higher in the second half of the year.

Ozkardeskaya added: “Prices will rise, earnings will be pressured, the (Federal Reserve) will wait as US growth slows and inflation risks loom – and global investors may increasingly cut exposure to US assets.”

BMI, however, said that it remains in Trump’s own interest to agree to lower tariffs than the levels that he is threatening.

“He risks further capital flight, which would raise interest costs for the US government and – perhaps more importantly – a spike in inflation, which would spark voter backlash ahead of the midterm elections,” said BMI analysts.

Most markets in the Asia-Pacific were muted on Tuesday, and analysts do not expect any big fallout.

Singapore’s Straits Times Index closed up 0.4 per cent at 4,047.86. The Hang Seng Index in Hong Kong rose 1.1 per cent to 24,148.07. China’s CSI 300 Index, comprising stocks traded on the Shanghai and Shenzhen exchanges, ended nearly 1 per cent higher at 3,998.45.

Elsewhere in the region, Japan’s Nikkei 225 closed up 0.3 per cent, and South Korea’s Kospi finished 1.9 per cent higher. Australia’s ASX 200 inched up 0.02 per cent to 8,590.70.

Vasu Menon, managing director of investment strategy at OCBC, said: “That Trump is once again engaged in a negotiating tactic rather than making serious tariff threats offers hope to investors.”

“Eventually, the possibility that the tariffs imposed will be nowhere as high as the draconian figures suggested on Apr 2 may bring relief to markets,” he added.

Aberdeen Investments is staying “modestly positive” on equities, across both developed markets and emerging markets, given the macro backdrop of slowing but still positive growth, and ongoing rate cuts.

“That said, the conviction around this positivity is moderate, especially after the rally since the initial pause on the ‘Liberation Day’ tariffs, and given that developed markets earnings revisions, in particular, have been negative,” the firm’s analysts said on Tuesday.

Maybank analysts expect the US dollar to remain weaker in the longer term. “Gradually building up a short US dollar position on rallies in the greenback may be the most sensible and prudent way to express such a view as volatility rises,” they said.