India, Japan relatively shielded from US tariff risks, says Morgan Stanley

India and Japan are relatively shielded from the risks posed by US President-elect Donald Trump’s tariffs, according to a recent analysis from Morgan Stanley. The investment bank expects structural tailwinds and the continuation of favourable policy mixes in both Asian countries to help offset the potential headwinds posed by rising tariffs.

For Japan, Morgan Stanley's team noted that about 70 per cent of Japanese products were exempted from tariffs imposed by the United States, primarily because they were not easily replaceable. The exemption is seen as a significant advantage, enabling Japan to avoid the worst impacts of US tariff policies.

Read Also: Several tariff tidal wave may hit China as Trump threatens Round 2 of trade war; Morgan Stanley makes predictions


On the other hand, Trump recently labeled India as "the biggest charger of tariffs," referring to the country's relatively high tariff rates on imports from the US. According to World Trade Organization (WTO) data, India's tariff rate on US imports increased to 9.5 per cent in 2022, although it has since rolled back retaliatory tariffs on key US products like apples and other agricultural goods in September 2023.

The international brokerage's Chief Economist for India, Upasana Chachra, estimates that a 10 per cent increase in tariffs on imports from India could lead to a 30 basis point (bps) reduction in India's growth. This estimate, however, does not account for the indirect impact that higher tariffs could have on corporate confidence and capital expenditure (capex).

The concerns arise amid President-elect Trump’s broader pledge to impose tariffs on the US' three largest trading partners—China, Canada, and Mexico. If carried out, the proposed tariffs would target a broad range of industries, including oil, natural gas, agriculture, and manufacturing. Such measures could disrupt long-established trade patterns and global supply chains, affecting not only China but also other key global economies.

Read Also: Indian economy to bounce back for 3 big factors: Here's what Morgan Stanley forecasts

Meanwhile, as the US looks to recalibrate its trade relationships, Asia’s reliance on the US market remains a double-edged sword, noted Morgan Stanley. While the region continues to benefit from strong export growth to the US, it still faces growing risks from trade disputes and tariff policies aimed at narrowing the trade deficit. For Asian economies, particularly those with large surpluses such as Vietnam, Japan, Taiwan, and South Korea, the ability to adapt to these shifting trade dynamics will be critical in maintaining stable growth.

In this context, Asia’s policymakers will need to find ways to diversify their trade partners and reduce reliance on the US to buffer against the risk of tariff-induced slowdowns.