Tariff threats fuel Asia-Pacific jitters

With the return of trade measures as a foreign policy tool in the United States, uncertainties for Asia Pacific, where many economies are large exporters, have increased.

Tariffs may slow the positive momentum, according to S&P Global Ratings. “Positive sovereign credit trend this year is less certain to carry into 2025,” according to the credit watchdog.

S&P report “Asia-Pacific Sovereign Rating Trends 2025: Brace For Change” stated “A potential increase in US tariffs poses risks to export economies in the region. However, we do not expect such measures to immediately strain sovereign ratings in the region.”

“Asia-Pacific economic growth in 2025 should be little different from that in 2024, in our view,” S&P Global Ratings credit analyst Kim Eng Tan said.

“Growth in Greater China and Korea is likely to decelerate from 2024. But stronger economic performance in Japan and Southeast Asia should offset this weakness,” he indicated.

Invest-grade region

Most sovereign ratings in Asia-Pacific are investment grade. The average sovereign rating in the region, lying between “BBB” and “BBB+”, moved closer to “BBB” in 2024 on account of S&P’s downgrade of Bangladesh to “B+”.

“The stable outlooks on most long-term foreign-currency sovereign ratings in the region, or 17 out of 21 ratings in Asia-Pacific, suggest there will be few, if any, changes in the next year or so.”

US trade policy poses a risk to this credit outlook. It seems likely that tariffs on imports from at least some Asia-Pacific economies, especially China, will increase.

“We expect that such increases will be calibrated to have a limited impact on the US economy. However, miscalculations could lead to hits on the global gross domestic product (GDP).”

“Some governments may see short-term positive credit implications from ongoing geopolitical tension. Since the first series of tariff increases on China in 2019, there have been significant changes in international trade and investment flows. Exporters in other economies have taken market share in key products that China ships to the US,” Tan said.