The world saw a brief relief after Trump refrained from universal tariffs but trade conflicts between China and the US could intensify
US
Upbeat US economic data and policy uncertainties are expected to prompt the Fed to maintain rates this week. Following his inauguration as the 47th President of the US on January 20, Donald Trump signed a series of executive orders, including withdrawing the US from the Paris Agreement, the World Health Organization (WHO), and Global Minimum Tax deal. He also declared a state of energy emergency, and launched crackdown on illegal immigration.
Mr. Trump is considering a 10% tariff on Chinese goods and a 25% tariff on imports from Mexico and Canada, starting February 1, if they fail to address illegal immigration and fentanyl smuggling. He also threatened tariffs on countries with significant trade surpluses with the US, particularly the European Union (EU). With positive economic data and expectations of rising growth and inflation driven by Trump’s policies, Krungsri Research sees the Fed to maintain the policy rate at 4.25–4.50% during its January 28–29 meeting.
Japan
Japan's economy is recovering, but weaknesses in manufacturing and exports could prompt a slow pace of rate hikes. At its January meeting, the Bank of Japan (BOJ) raised its policy rate by 25bps to a 17-year high of 0.50% and hinted further hikes if economic and inflation data meet expectations. Meanwhile, January manufacturing PMI fell to 48.8, the most contraction in 10 months, while the services PMI rose to 52.1, the fastest growth in four months.
The BOJ’s latest rate hike reflects rising wages, higher inflation, and impacts of stimulus measures on an economic recovery, with a short-term relief of trade uncertainties after Mr. Trump refrained from universal tariffs. However, Japan’s economic recovery faces several challenges, including sluggish manufacturing and exports amid weak demand in trading partners, intensified competition in the automotive industry, and escalating trade tensions. Given these conditions, Japan’s next rate hike is expected to occur in the second half of 2025.
China
China faces increasing trade pressure from the US. On January 20–21, Mr. Trump announced plans to consider additional 10% tariffs on Chinese imports and 25% tariffs on imports from Mexico and Canada, which might take effect on February 1. Moreover, on January 23, the US Congress introduced the Restoring Trade Fairness Act to revoke China’s Permanent Normal Trade Relations (PNTR) status. This would lead to minimum tariffs of 35% for non-strategic goods and 100% for strategic goods imported from China, with phase-in increases over the next five years.
We estimate that the US tariff hikes on China, Mexico, and Canada would reduce Chinese exports and GDP from baseline by 2.38% and 0.08%, respectively. Meanwhile, it might not be worth the cost for the US, as losses on the US’s exports and GDP would be four times more than China’s. Also, the revocation of China’s PNTR status might worsen the “decoupling” or disrupt the global supply chains. Looking forward, China is expected to speed up measures to boost consumption and investment to mitigate impacts of a weakening export trend.
Thai exports projected to slow down from better-than-expected growth in 2024 to 2.7% in 2025, amid challenges from escalating trade tensions.
December exports grew by 8.7%, bringing 2024 growth beyond expectations at 5.4%. However, 2025 export growth is expected to slow to 2.7%. Export value in December grew for the sixth consecutive month at 8.7% YoY to USD 24.8 bn, driven by exports of capital goods and raw materials across nearly all categories. Exports to almost all key export markets also saw an expansion. For 2024, total exports grew 5.4% YoY to a record high of USD 300 bn.
Exports in December continued to grow strongly from November’s +8.2% YoY, partly benefiting from accelerated demand from trading partners to prepare for uncertainties surrounding US President Trump’s trade policy. Looking ahead, Krungsri Research forecasts Thailand’s export growth to decelerate to 2.7% in 2025. This slowdown reflects structural challenges, such as declining competitiveness of Thai industries, risks from intensifying trade tensions, and increased competition from Chinese products expected to flood global markets (if the US imposes higher tariffs on Chinese imports). However, Thai exports will be supported by the global economic expansion, projected by the IMF at 3.3% in 2025, close to 2024’s 3.2%. Additional growth drivers include the expansion of the digital economy and tourism-related activities, which will boost demand for certain export items such as electronics, food, and agricultural products.
Krungsri Research estimates Thailand may see only slight gains from US imposing 10% import tariffs on China and 25% tariffs on Mexico and Canada. US President Trump recently announced plans to consider raising tariffs on all imported goods from these three countries, which might take effect on February 1.
Under Krungsri Research’s economic assessment using the Global Trade Analysis Project (GTAP) model, based on the scenario of the US imposing a 10% tariff on all imports from China and a 25% tariff on all imports from Mexico and Canada, the result shows that Thailand's exports and GDP could rise from the baseline by only +1.65% and +0.05%, respectively. Thailand may benefit from (i) increased exports in some certain products, due to substitution effects and (ii) production relocations to avoid tariff impacts. However, these positive effects are concentrated in a limited range of products. Importantly, negative impacts on Thai exports are more widespread across various industries. Additionally, the uncertainty surrounding President Trump's international trade policies continues to pose challenges, potentially disrupting the global economy and trade, which remains a significant concern for Thailand's overall economic outlook.
