India least exposed to US tariffs due to domestic demand strength: Morgan Stanley
New Delhi: When it comes to the ratio of goods exports to GDP in the wake of US trade tariffs, India and Japan are the least exposed economies owing to domestic demand strength, a Morgan Stanley report said on Friday.
The ratio of goods exports to GDP is the most important metric; it determines the extent of trade orientation of the economies. This allows global research firms to assess which economy will face more downward pressures on growth.
“India and Japan — these economies have robust tailwinds from domestic demand strength as an offset and relatively lower ratios of goods exports to GDP,” the report mentioned.
The US has also implemented 25 per cent tariffs on auto imports. The report said that the imposition of 25 per cent tariffs on auto and auto parts will affect Japan and Korea the most, as auto exports to US account for 7 per cent of their exports.
On April 2, the US administration is likely to propose a plan for addressing reciprocity in trade relations. The US administration also continues to signal that it will impose sectoral tariffs on energy, pharmaceuticals, semiconductors, agriculture, copper, and lumber.
“The potential implementation will almost affect all economies in Asia directly either via economy-specific tariffs or sectoral tariffs. But our key concern remains that elevated levels of policy uncertainty weigh on capex and trade – damaging the business cycle,” the Morgan Stanley report noted.
At -US$245 billion, the US runs a reasonably large combined deficit in passenger vehicles, vehicles for goods transport, and auto parts (including EV batteries) – referred to as autos deficit below.
Of this deficit, Asia accounts for -US$115 billion or 47 per cent. Within Asia, Japan, Korea, and China stand out as the three economies that make up the bulk of this deficit. The three economies also rank second, third, and fourth in the top 10 economies with which the US runs the largest autos deficits.
“For Japan and Korea, much of the deficit is made up of vehicles and non-battery auto parts. For China, the majority of the deficit comes from EV batteries,” said the report.
Chief Economist for Japan, Takeshi Yamaguchi, notes that if the 25 per cent auto tariff remains in place for a prolonged period and auto exports to the US fall 15-30 per cent, it would have a negative impact of 0.2-0.3 percentage points on Japan’s GDP growth.