Morgan Stanley Sees Tough Road For Trump Deals With China, India

As the deadline approaches for President Donald Trump’s reciprocal tariffs, economists at Morgan Stanley found it will be difficult for some of Asia’s biggest economies to reach a trade deal with the US in time. 

China is the most exposed to these tariffs, followed by India and Vietnam, according to a research note sent to clients on Wednesday. These three countries could also find it more challenging than other economies in the region to sign a pact by April, according to analysts led by Chetan Ahya. 

Trump last week ordered his administration to consider imposing reciprocal tariffs on trading partners, with a report from officials due April 1. India has said it is looking to conclude a trade deal with the US as soon as possible to avoid facing the impact of these levies. But the path to a deal may be complicated for the South Asian nation as it imposes “very high” tariff rates on certain products such as food and textiles, Morgan Stanley said. 

For China, a “multitude” of issues — including the scale of the trade surplus with the US, strategic competition and national security concerns — could make reaching a potential deal with the White House an uphill task, the analysts said. 

Smaller nations will also be tested when it comes to meeting Trump’s definition of trade fairness. Vietnam — one of the largest beneficiaries of manufacturing rerouting after the US-China trade war during the first Trump administration — relies on the US trade surplus for a quarter of its gross domestic product, Morgan Stanley found. Its surplus with the US is about $124 billion.

The economists considered a range of trade factors, including the difference in tariff rates between the US and Asian trading partners, value-added tax, the trade balance and non-tariff trade barriers as defined by the United Nations. 

“President Trump’s focus on fixing the US’ large and persistent trade deficit means that Asia will be exposed,” the analysts wrote, adding that much of the risk to the region’s economies will come not just from the direct hit of the tariffs. “The indirect effects of tariffs matter more – that is, the persistence of trade tensions will weigh on corporate confidence, capex and trade.”

As Trump continues his rapid-fire tariff announcements — from reciprocal import duties to the announcement Thursday of lumber levies — policymakers and analysts have scrambled to quantify what it means for domestic economies. So far, Asian leaders have made a range of promises to the US administration, from purchasing more US goods to removing some tariff barriers.