India and Japan Least Vulnerable to US Tariffs, Says Morgan Stanley

Synopsis

A recent Morgan Stanley report reveals that India and Japan have the lowest exposure to US trade tariffs due to strong domestic demand. This positions them favorably compared to other economies, especially in light of impending sectoral tariffs affecting various industries.

Key Takeaways

India and Japan exhibit robust domestic demand.
Low goods exports to GDP ratios mitigate tariff impacts.
The US imposes a 25% tariff on auto imports.
High policy uncertainty may harm capital expenditure.
Japan and Korea face significant auto export challenges.

New Delhi, March 28 (NationPress) In terms of the ratio of goods exports to GDP amidst US trade tariffs, India and Japan stand as the least vulnerable economies, primarily due to their strong domestic demand, according to a report by Morgan Stanley released on Friday.

This ratio of goods exports to GDP is a critical indicator; it reveals the level of trade orientation within economies. Such data enables global research firms to evaluate which economies may experience greater downward pressure on growth.

According to the report, “India and Japan have strong domestic demand as a counterbalance to their relatively low ratios of goods exports to GDP.”

The US has enacted a 25 percent tariff on auto imports. The report indicates that this tariff will predominantly impact Japan and Korea, as auto exports to the US constitute 7 percent of their total exports.

On April 2, the US government is expected to unveil a strategy aimed at addressing reciprocity in trade relations. Furthermore, it continues to indicate the potential for imposing sector-specific tariffs on energy, pharmaceuticals, semiconductors, agriculture, copper, and lumber.

“The potential introduction of these tariffs could directly affect nearly all Asian economies through either country-specific or sectoral tariffs. However, our primary concern is that high levels of policy uncertainty may hinder capital expenditure and trade, adversely impacting the business cycle,” the Morgan Stanley report stated.

With a deficit of -US$245 billion, the US has a substantial combined deficit in the realm of passenger vehicles, goods transport vehicles, and auto parts (including EV batteries) – referred to as the autos deficit.

Asia constitutes -US$115 billion, or 47 percent, of this deficit. Within the region, Japan, Korea, and China emerge as the primary economies contributing to this deficit. These three nations rank as the second, third, and fourth largest economies with which the US holds the most significant autos deficits.

According to the report, “For Japan and Korea, much of the deficit comprises vehicles and non-battery auto parts. For China, the majority of the deficit arises from EV batteries.”

Chief Economist for Japan, Takeshi Yamaguchi, warns that if the 25 percent auto tariff persists over a prolonged duration, resulting in a 15-30 percent drop in auto exports to the US, it could negatively affect Japan's GDP growth by 0.2-0.3 percentage points.