Asia and “reciprocal tariffs”: Is regionalism the antidote?

Overall, while the Asia-Pacific has many PTAs, they are mostly not very deep either in terms of goods (i.e., there are many exceptions) or in their provisions on services and regulation. For example, over a quarter of the PTAs lack provisions on antidumping duties; fewer than half contain provisions on financial services; and the liberalization of sensitive agricultural products in the CPTPP is subject to tariff rate quotas in several members. On the other hand, the creation and maintenance of these PTAs have involved interactions and cooperation, and so in the current extreme trade environment, they form an important foundation for future collaboration.

The tariff crisis

Trump has advocated restrictions on international trade — specifically tariffs — for nearly four decades, and since becoming president for a second term in 2025, he has imposed or intends to impose tariffs on nearly all US imports of goods. These are substantially higher than anyone expected. These tariffs have been given many justifications by Trump and his administration — some mutually inconsistent, some clearly for political as much as economic reasons, and most for ends that are not likely to be achieved by tariffs. The tariffs were calculated in ways that manifestly do not correspond to their stated aims, and they have been switched on and off in an apparently arbitrary manner.

This sorry tale has led to widespread economic uncertainty and declining faith in the United States as the center of the global financial system. Working out how to respond to US tariffs is also complicated by the difficulty of identifying Trump’s underlying worldview. He seems to believe that dealmaking is the pursuit of commercial advantages and that transactions are zero-sum — if one side wins, the other must lose. Beyond these beliefs, however, not much is clear.

How vulnerable is Asia?

The fragmentation of the world economy and the massive policy uncertainty that the Trump administration has unleashed will affect incomes around the world. The International Monetary Fund’s World Economic Outlook of April 2025 downgraded its growth forecasts relative to forecasts in January 2025 by 0.5 percentage points in 2025 and 0.3 in 2026 globally, and by 0.9 and 0.4 for the United States. In Asia, even after compensatory fiscal policies, the corresponding figures were downgrades of 0.6 and 0.5 percentage points for China, 0.5 and 0.2 for Japan, 0.3 and 0.2 for India, and 0.6 and 0.6 for the ASEAN-5, meaning Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

Asian countries have been huge beneficiaries of the open world economy, and the extent to which they suffer will depend at least partly on their economic structure. It will also, of course, depend on how they react. Some economic indicators to assess vulnerability include:

• GDP (size may matter, not least in terms of how effective robust responses may be);
• The ratio of exports (goods and services) to GDP (broadly speaking, an indicator of vulnerability to economic conditions abroad)
• The share of goods exports destined for the United States (an indicator of exposure to US markets; Trump’ trade policies have so far focused just on goods);
• The ratios of goods exports to the United States to total exports and to GDP;
• The shares of goods exports destined for the EU and the rest of Asia (links with potential alternative markets);
• Trump’s country-specific "reciprocal tariff"; and
• The country’s PTAs (their number, partners, and proportion of trade, which help assess what scope the country has to liberalize trade with non-US partners).

Two countries leap out as highly vulnerable: Cambodia and Vietnam. Both are poor, very open, export heavily to the US, and disproportionately rely on goods for their exports. They also both have large trade surpluses with the US and so were hit by high "reciprocal tariffs". The least vulnerable appear to be Bangladesh, Laos, and Australia. The first is aided by low openness, the second by focusing exports on Asia, and the last by relatively low scores on both indicators. India and Pakistan are also less exposed because they are less open than the Asian average.

The apparent solution to reduced access to the US market is to seek other markets, and in the long run that is exactly what will happen. However, in the short run this strategy poses challenges. Most obviously, is it worth it? Will Trump unwind his trade restrictions, or will the next administration do so? Both might weaken the barriers, but neither is likely to reverse them completely—Trump because his attachment to tariffs seems set, and the next administration because three years of protection will create winners that will seek to prevent the system’s dismantlement.

Hence, some restructuring of trade patterns needs to occur, but the search for new markets is time-consuming and expensive. Moreover, almost all candidate markets have also suffered from Trump’s trade policy and will not welcome a flood of diverted exports. Most have trade defense mechanisms, and in the current climate will face great domestic pressure to use them. Thus, progress will be slow. Overall, then, trade-dependent countries could well take several years to recover from Trump’s first six months.

Is regionalism in Asia the answer?

PTAs have reinforced the openness of Asian economies and helped integrate the markets and transform the region into a formidable producer. However, those Asian countries with 80% or more of their exports going to PTA partners are unlikely to find much relief by seeking more such agreements. Rather, relief will require that PTAs are deepened or extended into areas that were previously excluded, but this will be harder and slower to achieve. The exclusions arose in the first place because liberalization posed political problems, and extensions into new areas such as digital trade or services will also require more technical work before it can be done confidently.

Among the smaller and middle-sized trading partners, serious effort would be warranted to try to combine the many bilateral or minilateral PTAs into larger blocs with common rules of origin and, ideally, compatible regulations. The role models for either deepening or widening would be ASEAN and the CPTPP. ASEAN has made steady, quiet progress through negotiations and compromises to ease the cost of trading among members. The CPTPP can accommodate a wide range of approaches in different regulatory areas and has an ambitious set of goals beyond mere tariff reduction. It has the benefit of being a recent agreement forged in the shadow of a US withdrawal and size in its favor.

Global response

For every country affected by Trump’s tariff policy, adhering to World Trade Organization (WTO) rules is an essential part of a global response. It is possible to argue that the WTO faces so many challenges that respecting its rules is not a solution. However, the body is all we have as a focal point for cooperation. While adhering to its principles may not be enough in the longer term, they offer useful guidance for negotiating with the Trump administration to prevent the entire world trading system from disintegrating. In addition to pausing retaliation, WTO members should take the following actions:

• Make a public commitment that the outcomes of bilateral negotiations with the United States will be consistent with the WTO and will not explicitly impose costs on other parties.
• Publish the outcomes of negotiations as soon as they are completed.
• Reject the United States’ pressure to join in its discrimination against any country.

At the same time, WTO members should aim to liberalize trade among themselves and initiate a new multilateral round that includes meaningful discussions about reforming the organization. The talks should be open to the United States but not dependent on its participation. And if the US chooses to stand apart, these discussions could also examine how to deal with a large non-member or non-participating member in ways that do not undermine relations between members.

Unless it formally leaves the WTO, the United States could block an agreement, but it cannot prevent, except through threats in other areas, the other 165 members from meeting and discussing matters. Whether the other 165 could actually reach agreement is unclear, but the Asian experience of innovation, negotiation, and compromise could greatly aid the process.

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