Fractured Trade - Resilient Growth : Asia's Response to Global Tariff Battles

By Sriram Ananthakrishnan - Opinion Columnist

The global trade war – most notably the tariff showdown between the United States and China – has disrupted industries and economies worldwide. Nowhere is this upheaval more apparent than in Asia. As tit-for-tat tariffs escalate and protectionism rises, Asian manufacturers, supply chains, and governments are grappling with the ripple effects. From high-tech electronics factories in China and India to auto assembly lines in Southeast Asia, the consequences of this trade conflict are profound. Recent data and expert analyses reveal a complex picture: one of short-term pain, adaptive resilience, and a reordering of global trade patterns.

Escalating Tensions and Ripple Effects in Asia

The U.S.-China trade war began in 2018 with sweeping tariffs on hundreds of billions of dollars in goods. By late 2019, the U.S. had imposed tariffs on roughly $350 billions of Chinese imports, and China retaliated with tariffs on about $100 billion of U.S. exports. These aggressive measures marked the largest eruption of trade tensions in decades, and their shockwaves have been felt across Asia’s interlinked economies. The International Monetary Fund warned early on that such tariffs could shave 0.8% off global GDP by 2020.Indeed, as tariffs hit, manufacturing activity weakened globally to levels not seen since the 2008 financial crisis, eroding business confidence and investment. Asia’s export-driven economies have been especially vulnerable. In 2019, as new tariffs and uncertainty took hold, growth in Asia slowed to about 5.0% the region’s weakest expansion since the global financial crisis. The IMF attributed this cooldown largely to a pronounced decline in investment and exports amid global policy uncertainty. China’s GDP growth dipped to 6.1% in 2019 (a nearly 30-year low), in part due to U.S. tariff pressures despite Beijing’s efforts to offset the impact with stimulus measures. Export powerhouses like Japan and South Korea saw overseas orders slump, while emerging Asian countries braced for aftershocks. “Trade tensions…are not only a threat, but are actually beginning to weigh down the dynamism in the global economy,” an IMF spokesperson noted as the slowdown took hold

Yet even as Asia’s overall growth cooled, the trade war’s effects have been uneven ?hurting some sectors and countries while unexpectedly benefiting others. This dual reality is now central to the Asian experience in the trade war: significant disruption for regional supply chains on one hand, and opportunistic gains for certain exporters on the other. The escalating tariff crossfire has set the stage for a reshuffling of industrial fortunes across the continent.

Despite a partial economic rebound in 2024–2025, the fundamental U.S.-China tariff framework remains largely intact, with some measures even reinforced. The IMF projects Asia’s GDP to expand by around 4.4% in 2025 still outpacing global growth, but below what it might have been without prolonged tariff uncertainty. Both Beijing and Washington have signaled they may impose additional duties in strategic sectors—such as electric vehicles and advanced electronics if current negotiations stall, heightening concerns of a renewed escalation later in 2025.

Tariffs Hit Manufacturing – Tech, Autos, and Semiconductors in the Crosshairs

From Shenzhen to Silicon Valley, the trade war’s most visible battleground has been technology. High-tech manufacturing and semiconductor industries in Asia have found themselves squarely in the crosshairs of tariffs and export controls. The United States targeted China’s tech sector early with tariffs on electronics and later with strict bans on semiconductor exports, citing national security. Beijing, for its part, retaliated in kind. By 2020, the average U.S. tariff on Chinese goods had jumped from a modest 3% pre-war to nearly 20%, covering over 66% of China’s exports to the U.S.China responded by raising its own tariffs on U.S. goods from 8% to over 21%, hitting about 58% of its imports from America. These duties directly throttled the flow of tech components and devices between the world’s two largest economies.

China’s technology sector has arguably felt the most pain. The tariffs and accompanying U.S. sanctions cut into Chinese electronics exports and hampered firms like Huawei. American duties on Chinese-made smartphones, circuit boards, and telecom equipment not only hurt Chinese manufacturers but also disrupted supply lines for many Asian nations supplying parts to China. In tandem, Washington imposed export bans on advanced semiconductors and chipmaking equipment destined for China, seeking to freeze Beijing’s progress in areas like artificial intelligence and 5G. U.S. curbs on semiconductors and other tech goods have hobbled advances in AI in China’s economy,” notes one Reuters analysis. The U.S. in 2022 broadened these controls to bar China’s access to cutting-edge chips and even the lithography machines needed to produce them. This tech war within the trade war has forced China to redouble efforts at self-sufficiency – and recently provoked Beijing to strike back by restricting exports of critical minerals (like gallium and germanium) vital to semiconductor production. The result is a fragmented tech supply chain: Asian chipmakers in Taiwan and South Korea face pressure to choose sides, while Chinese tech firms scramble to redesign products without U.S. components, and firms in Japan and the Netherlands are caught in the geopolitical crossfire of export controls. Heightened “chip war” tensions persist. The U.S. has tightened export rules further to block advanced AI chips from reaching China. China, in response, imposed new restrictions on exports of additional rare minerals crucial to semiconductors. The Chinese government has also poured billions more into domestic chip R&D through its “Big Fund III.” Across Asia, companies like TSMC, Samsung, and Intel are building fabs in the U.S. and Japan to comply with allied export control regimes, even as they maintain some operations in China. India, seizing this moment, has redoubled incentives for chip assembly plants and design houses—attracting early-stage foreign direct investment in semiconductors for the first time on a large scale.

Containers stacked at Singapore’s port illustrate Asia’s pivotal role in global supply chains. Tariffs on Chinese goods have disrupted shipping flows, forcing manufacturers to reroute and adjust sourcing strategies.

The automotive industry is another major sector jolted by the trade war – including in Asia. The U.S. and China have exchanged tariffs on cars and auto parts up to 25%, raising costs in a supply chain that spans from Detroit to Guangzhou to Bangkok. In recent months, the U.S. has even floated tariffs as high as 100% on Chinese electric vehicles (EVs), a salvo aimed at China’s booming EV manufacturers. Such steep tariffs, if fully implemented, would price Chinese EVs out of overseas markets and reverberate through Asian auto supply chains – many of which provide parts and batteries for those vehicles. China retaliated by launching anti-dumping investigations into key automotive inputs (like specialized polymers) from the U.S., EU, Japan, and others. This tit-for-tat raises uncertainty for automakers across Asia. Companies in the automotive sector now face higher input costs and potential supply bottlenecks as trade barriers harden. For example, Chinese automakers may need to source more components domestically or from friendly nations if U.S. and European suppliers become entangled in trade restrictions. Japanese and Korean car manufacturers, deeply invested in China both as a market and production base, have had to hedge against potential disruptions. In Southeast Asia – where countries like Thailand are regional auto manufacturing hubs – industry leaders worry that global protectionism could dampen demand for vehicles and complicate the export of auto parts. The automotive supply chain, much like technology, is being forced to rewire itself in response to the trade war’s new realities. Semiconductors sit at the nexus of the tech and auto battles, and Asia is home to the world’s semiconductor foundries and suppliers. The U.S.-China tariff fight has broadened into a full-fledged “chip war,” with the U.S. barring Chinese access to advanced chips and China exploring retaliatory limits on exports of semiconductor materials This affects not only China and the U.S. but also chip industry players across Asia – from Taiwan’s TSMC to South Korea’s Samsung, and equipment makers in Japan and the Netherlands. Restrictions on China have forced these firms to navigate complex new compliance hurdles, often at the cost of foregoing a huge Chinese market for their most advanced products. Meanwhile, China is pouring billions into its domestic semiconductor sector to reduce reliance on foreign technology, though experts say it could take years to catch up in cutting-edge chip design and fabrication. In India, the government has seized on the situation as an opportunity – rolling out incentives to attract semiconductor plants and positioning itself as a potential alternative hub for chip assembly and design. The semiconductor saga underscores how deeply the trade war has entangled high-value industries: what began as simple tariffs on goods like steel and solar panels has evolved into a strategic struggle over technological leadership, centered in Asia’s industrial heartlands. With Chinese EV exports nearly doubling year-on-year since 2023, the U.S. and EU have expanded tariff measures on Chinese cars, citing “unfair subsidies.” This has prompted Chinese automakers to set up assembly plants in Southeast Asia—particularly in Thailand and Indonesia—to circumvent direct tariffs. Japanese and Korean automakers, meanwhile, have accelerated R&D in EV batteries and fuel cells to stay competitive, often relocating part of their supply chains to “friendlier” Asian markets. The result is a patchwork of new auto production hubs and an increasingly bifurcated global EV market.

Supply Chain Shake-Up: “China+1” ?to “China+N” Strategy and Trade Pattern Shifts

One of the most significant ripple effects of the trade war has been a reconfiguration of global supply chains. As tariffs made Chinese-manufactured goods more expensive, companies around the world began adopting a “China+1” strategy – diversifying production by adding alternative locations in Asia to supplement or replace China. The logic is clear: if a 25% U.S. tariff applies to goods made in China, shifting even part of the production to a country like Vietnam or Thailand can bypass that cost. In fact, because only a portion of a “Made in China” product’s value is added in China itself, a 25% tariff can translate into an effective 81% tax on the Chinese value-added componentThis huge cost incentive pushed many manufacturers to relocate operations to Southeast Asia, where producing the same item might suddenly be far cheaper under the new tariff regime. Vietnam has emerged as a clear winner in this diversion. Investors from China and elsewhere have poured capital into Vietnamese factories to sidestep tariffs. In one case, a Chinese-owned electronics supplier for Tesla picked up and moved its assembly line from Shenzhen to Vietnam within six months, specifically to avoid the U.S. import tax on Chinese goods. This is not an isolated story. Vietnam’s foreign direct investment from China jumped 78% in a year as the trade war gained steam, and Vietnam has seen a surge of more than 50% year-on-year in exports of electronics components to the U.S. in 2024. Other Southeast Asian nations – Malaysia, Thailand, Indonesia – have likewise attracted new factories making everything from apparel and appliances to network equipment. Even Bangladesh has picked up relocated textile and footwear orders as firms seek tariff havens for labor-intensive goodsA semiconductor cleanroom in operation. The U.S.-China trade war has extended to a “chip war,” with export controls on advanced semiconductors. Asian chipmakers are investing in new facilities and countries (from India to Vietnam) as they diversify supply chains amid geopolitical pressures India, too, is leveraging this moment. Long seen as a sleeping giant of manufacturing, India has welcomed the redirection of supply chains. “India’s manufacturing sector, especially in electronics, could see significant benefits from trade shifts caused by US tariffs on China,” notes one industry expert. The Indian government’s Production-Linked Incentive (PLI) program – essentially subsidies and incentives for firms to make goods in India – has already drawn major smartphone assembly projects from the likes of Apple and Samsung. Mobile phone and IT hardware production in India is accelerating, aiming to fill the gap as multinational companies look beyond China. During the initial U.S.-China tariff bouts (2018–2019), India was reportedly the fourth-largest beneficiary of trade diversion as exporters secured new orders. Now, Indian officials are optimistic that even more manufacturing investment will flow their way. Certainly, challenges remain (infrastructure, skills, etc.), but India senses an opportunity to finally establish itself as a global factory for electronics, auto parts, and other goods. At a broader level, global trade patterns are visibly adjusting. China’s share of U.S. imports has fallen in the tariff era, while exports from countries like Vietnam, Mexico, and Taiwan to the U.S. have surged. China has, in turn, redirected its trade toward other partners: Beijing now exports more to the EU and to Southeast Asia, partially compensating for lost U.S. sales. By 2022, the U.S. had been dethroned by ASEAN as China’s number one trading partner, illustrating this shift. Ironically, even as the U.S. bilateral deficit with China shrank slightly in the early tariff years, China’s trade surplus with the rest of the world ballooned. In fact, the aggregate global trade deficit with China doubled from $420 billion in 2017 to about $822 billion in 2023. This suggests that while some production left China, much of it went to other countries that then sold to the U.S. – or China’s exports found new markets. Economists sometimes dub this the “trade diversion effect”: orders get rerouted rather than eliminated. To be sure, Southeast Asia’s gains are not without complications. Many ASEAN factories supply intermediate parts to China’s manufacturers, so when Chinese exports to the U.S. drop, demand for inputs from ASEAN also falls. A Thai or Malaysian electronics firm that sells components to a Chinese plant may hurt if that Chinese plant produces fewer goods for America. This interdependence means Asia’s supply chain winners also feel second-order losses. A study by Oxford Economics found that for Southeast Asia, trade diversion to their benefit might eventually outweigh the hit to overall growth, but only gradually. In the meantime, some Southeast Asian exporters are carefully watching that they don’t simply become transshipment points for Chinese goods (a practice that could invite U.S. scrutiny). Overall, the trend is clear: the trade war has accelerated a “decoupling” of sorts – with supply lines spreading out from China toward a more diverse Asia even if China remains an indispensable manufacturing base for many products.

By early 2025, “China+1” has become “China+N” for many multinationals diversifying into multiple Asian countries to hedge risk. Vietnam’s share of global consumer electronics exports has grown to over 10%, while India’s smartphone exports have topped $14 billion annually. Thailand and Indonesia are drawing EV battery and auto parts plants, as producers aim to circumvent new U.S. and EU tariffs on Chinese-made goods. Analysts predict that while China remains central to many supply chains, the proportion of final assembly outside China could rise to 30–35% by the end of 2025 up from about 20% in 2019.

Economic Repercussions: GDP, Trade Gaps, Inflation, and Jobs

Beyond industry-specific impacts, the trade war has left a broader economic imprint. On growth: global agencies like the IMF estimate the U.S.-China tariff fight visibly dented world GDP, with 2019–2020 worldwide output roughly 0.5–0.8% lower than it would have been without the trade war. China’s economy alone is thought to be about 0.5% smaller than it would be absent the tariffs, and the U.S. about 0.4% smaller, according to one simulation. These may sound like small percentages, but given the size of those economies, it’s a hit of tens of billions of dollars. In Asia, the drag contributed to several countries missing growth forecasts and experiencing multi-year lows in export growth during 2019–2020. The spillover of weakened Chinese demand also hurt neighbors – for instance, resource exporters like Indonesia and Malaysia saw lower commodity prices and volumes as China’s industrial engine cooled. At the same time, pockets of outperformance in countries like Vietnam helped East Asia excluding China actually eke out a slight net positive GDP effect (+0.1%) from the trade diversion. These uneven outcomes underscore the complexity of the trade war’s economic fallout. Trade balances have also shifted. Washington’s initial aim – to reduce its trade deficit with China – has seen mixed results. U.S. imports from China did fall (down about 16% in 2019, to a level not seen in years ), and the bilateral U.S.-China trade gap narrowed somewhat in 2019. However, American consumers simply turned to other suppliers. Countries like Mexico, Vietnam, and Taiwan picked up market share, and the U.S. continued to import roughly the same overall amount of goods – just fewer from China. Meanwhile, China’s overall trade surplus kept climbing. Beijing’s focus on exporting higher-value goods (such as batteries, electric vehicles, and solar panels) has only grown, and many nations still eagerly import these. As noted, by 2023 the global trade imbalance with China reached new highs, suggesting that the underlying drivers of deficits (savings-investment gaps, etc.) swamp the effects of any one tariff policy. In short, trade flows have been re-routed more than reduced. One notable concern is that dozens of countries now run deficits with China– a testament to China’s dominance in manufacturing ?raising the stakes for many economies if the trade war intensifies or widens to involve more nations.

Inflation has been another side effect. Tariffs, by design, raise import prices, and those costs often pass through to businesses and consumers. In the U.S., for example, importers largely bore the tariffs at first, but over time many costs were passed on. A Federal Reserve study found that the new wave of tariffs could add around 0.5 percentage points to core inflation as firms mark up prices to cover more expensive imports. American shoppers saw higher price tags on certain appliances, electronics, and furniture – essentially a tax on consumption. In China, tariffs on U.S. goods (like soybeans and automobiles) similarly raised input costs, contributing to some domestic inflation and prompting Beijing to tap alternate import suppliers (Brazil for soy, etc.) to contain price rises. For other Asian countries, the inflation impact has been indirect: supply chain rerouting can introduce inefficiencies and costs, and weaker currencies (as investors flocked to the safe-haven U.S. dollar during trade uncertainty) made imports pricier in local terms. However, the pandemic and war in Ukraine that followed have made it difficult to disentangle tariff-induced inflation from other price pressures. The bottom line is that protectionism tends to be inflationary, if modestly so consumers ultimately pay more for protected goods.

Employment and investment patterns are shifting too. In China, export-focused factories have shed workers or reduced hours as U.S. orders declined – particularly in sectors like electronics assembly and appliances. Some of those jobs have popped up elsewhere: Vietnam’s industrial parks are bustling with new hires, and Foxconn is hiring en masse in India to assemble iPhones that might have otherwise been made in China. The U.S. manufacturing sector, which tariffs ostensibly aimed to help, has seen only limited job gains, and in agriculture there were painful job and income losses when China’s retaliatory tariffs slammed U.S. farm exports. (Notably, the U.S. government spent $28 billion in subsidies to farmers in 2018–2019 to mitigate those losses more than the cost of some bailouts of the past.) Southeast Asian workers are gaining opportunities as factories relocate, but in some cases these are lower-wage jobs, and labor rights concerns have followed the shift. Meanwhile, multinational firms have had to freeze or rethink capital spending: a planned expansion of a Chinese plant might be canceled in favor of a new facility in Malaysia, for instance. Over time, this reallocation of where factories and jobs are located will have profound implications for development – boosting some communities and challenging others.

In summary, the trade war’s macro impact can be seen as a series of trade-offs. It has trimmed headline GDP growth and efficiency globally in exchange for an attempt at rebalancing trade relationships. It has raised costs and prices in some areas even as it stimulates investment in others. It has not collapsed global trade by any means – but it has certainly realigned it. Asia, as the world’s factory, feels these forces intensely: its economies are adapting in real time to the new pattern of trade that is emerging from the conflict.

Fresh IMF simulations suggest that if tariffs remain at current levels—and more strategic sectors are targeted—the world economy could lose an additional 0.3% of GDP by 2026. China’s foreign direct investment inflows have dropped significantly over the past two years, with much of that capital redirected to Southeast Asia and India. Meanwhile, countries like Vietnam and Indonesia report record FDI in electronics and EV components, reflecting the accelerating “China+N” strategy. The upshot is a mixed picture: some Asian nations are enjoying a surge in new factories and jobs, while others, including China, face slower industrial growth and more cautious foreign investment.

Policy Responses and the Path Forward

Governments across Asia and the world are not passive in the face of these shocks ?they have responded with a mix of defensive and proactive policies. In the short run, several governments provided relief to industries hit by tariffs. China offered tax breaks and cheaper loans to exporters under strain, and it deftly shifted sourcing (for example, buying farm goods from Latin America instead of the U.S.). The United States, as mentioned, compensated its farmers and has maintained most tariffs even under a new administration, signaling a bipartisan hard line on China. Both Beijing and Washington are also investing heavily in industrial policy: the U.S. passed the $52 billion CHIPS Act to boost domestic semiconductor production, and China’s latest five-year plan earmarks massive support for high-tech manufacturing and self-reliance. Such subsidies aim to fortify home industries but also risk feeding a cycle of competitive intervention – effectively an arms race of state support that could further distort global markets.

Many Asian nations, meanwhile, have doubled down on trade agreements to buffer against the uncertainty. In the absence of a U.S.-led Trans-Pacific Partnership (which the U.S. withdrew from), Asia forged ahead with its own pacts. The Regional Comprehensive Economic Partnership (RCEP) – inked in 2020 by China, Japan, South Korea, Australia, New Zealand, and all 10 ASEAN countries – formed the world’s largest trading bloc, covering about 30% of global GDP . RCEP aims to lower tariffs and harmonize rules within Asia-Pacific, making it easier for supply chains to operate across member borders. Likewise, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) moved forward without the U.S., and economies like Vietnam and Malaysia are using it to lock in market access with partners. These agreements can’t replace U.S. and China markets, but they provide alternative avenues for growth and signal Asia’s commitment to open trade even as major powers turn inward. India, for its part, has struck new bilateral deals (with partners like Australia and the UAE) and is in talks with the U.S. on deepening trade ties – hoping to capitalize on its “favored” position as an alternative to China.

Global institutions have struggled to keep up. The World Trade Organization (WTO), which traditionally arbitrates trade disputes, has been sidelined in this conflict. Both the U.S. and China took some complaints to the WTO, but enforcement is toothless given that the WTO’s appellate dispute body has been paralyzed since 2019 (the U.S. has blocked new judge appointments) This lack of a functioning multilateral arbiter means the trade war is being fought through bilateral pressure and negotiations, not international law. Some analysts fear this sets a worrying precedent – undermining decades of rules-based trade and potentially encouraging might-makes-right tactics. There have been calls for WTO reform to address issues like subsidies and state-owned enterprises (often raised regarding China), but progress is slow. In the meantime, smaller countries feel caught in a bind: they rely on the WTO’s protections but also must tread carefully not to get caught in the giants’ crossfire or to be accused of unfair practices themselves.

What is the path forward?

There are a few glimmers of stabilization. In early 2020, the U.S. and China signed a “Phase One” trade deal in which China agreed to purchase more U.S. goods (like soybeans, energy, and aircraft) and strengthen intellectual property rules, temporarily halting further tariff escalation. While this eased tensions briefly, it did not roll back the major tariffs – most of those remain in place today. Enforcement of purchase commitments also fell short (exacerbated by the pandemic). Still, that deal showed that negotiation is possible. Going forward, a comprehensive resolution would likely require tackling the thornier structural issues – technology transfer, subsidies, and market access – that underlie the conflict. Such talks are challenging and politically sensitive, but they could yield a roadmap where tariffs are gradually removed in exchange for concrete reforms or mutual guarantees.

Policymakers in Asia are urging diversification and resilience. Governments are encouraging businesses to develop “Plan B” supply lines and stockpile critical inputs where feasible. There’s also a push to upgrade domestic capabilities: for instance, Southeast Asian countries are investing in workforce skills and infrastructure to attract higher-end manufacturing moving out of China, not just low-end assembly. India’s strategy, as noted, is to offer a huge domestic market and government support as lure for multinationals relocating operations – with some early successes in electronics. These steps, however, take time to bear fruit.

Finally, the trade war has sparked a broader rethink of globalization among business leaders and policymakers. The pendulum has swung toward “selective decoupling” and economic security – seen in phrases like “friend-shoring” (moving production to allied countries) and renewed interest in domestic manufacturing. While some degree of supply chain redistribution was overdue (for purely business reasons like rising Chinese labor costs), the risk is that overt protectionism overshoots, eroding the efficiency gains of global trade and leaving everyone worse off in the long run. The challenge ahead is finding a balance: diversifying and protecting strategic industries without fragmenting the global trading system into hostile blocs.

The United States has doubled down on “friend-shoring,” forging tighter supply chain partnerships with Japan, South Korea, and select Southeast Asian nations through the Indo-Pacific Economic Framework (IPEF). China is emphasizing “dual circulation” to reduce reliance on Western markets, while deepening trade with non-Western partners—especially in Africa, Latin America, and the Middle East. Meanwhile, RCEP has gradually lowered tariffs across member states, boosting intra-Asian trade, even as the CPTPP adds new signatories like the UK. The WTO remains hamstrung by its dispute-settlement deadlock, and no comprehensive U.S.-China tariff rollback is in sight. Both major powers continue to impose new controls on critical technologies nmaking it clear that the trade war, while more predictable in 2025, is far from over.

Conclusion: Adapting to an Uncertain Trade Future

The current trade war has undeniably reshaped the landscape for global industries – especially across Asia, where the world’s supply chains converge. In the span of a few years, we’ve witnessed tariffs cripple a portion of China’s export machine, spur a manufacturing exodus to new shores, and accelerate a technological arms race in semiconductors. Asian economies have absorbed the shocks with remarkable resilience, but not without cost. Growth has been knocked off course, investments delayed, and countless business decisions upended by policy uncertainty.

Whether this confrontation results in a fairer trading order or simply a costlier one remains an open question. For now, Asian nations find themselves walking a tightrope: integrating with a shifting world economy while hedging against geopolitics. The urgency for policymakers is to mitigate the damage and find opportunity in the disruption. That means continuing to pursue trade diversification, strengthening regional cooperation, and engaging in dialogue to prevent further escalation. It may also mean reforming institutions and rules to address legitimate grievances – from intellectual property to subsidies – so that disputes need not be settled through damaging tariffs.

Disclaimer:The views expressed in this article are those of the author and do not necessarily reflect the opinions of any affiliated organizations or institutions. This analysis is intended for informational purposes only and should not be considered financial, investment, or policy advice. Readers are encouraged to conduct their own research and consult with professional advisors before making any decisions based on the perspectives and data presented herein.