President Trump has again delayed the implementation of new reciprocal tariffs until August 1, extending the previous 90-day postponement set to expire on July 9.
Alongside this, the US announced updated tariff rates for 14 countries, including Japan, South Korea, South Africa, Indonesia, Malaysia, and Thailand.
While the rates remain close to those initially proposed in April (around 25% for Japan and Korea, and higher for countries like Thailand and Indonesia), sector-specific exemptions could lower the effective tariffs for many exporters.
The US also warned that if any country raises its tariffs, the US will add an equivalent increase to its reciprocal tariffs. Discussions and possible adjustments are expected to continue up to and beyond the August deadline.
So, what's the impact on emerging markets?
Emerging market equities have so far not fully priced in the risks posed by these tariffs.
Around 35% of the MSCI Emerging Markets index revenue comes from exports, with 13% exposed to the US.
If the tariffs snap back to the full April rates, the weighted average tariff could jump from 16% to 21%, a sharp increase from 2.4% last year, according to research by UBS.
This escalation would likely weigh heavily on global trade and economic growth.
Stress tests by the Swiss bank estimate that tariffs and related economic slowdown could reduce emerging market earnings by 6-9%, yet earnings forecasts have only been trimmed by about 3% recently, suggesting more downside could lie ahead.
Preferred plays
These tariff dynamics influence UBS’s market preferences. It remains overweight Malaysia and Indonesia despite expected modest growth hits: Malaysia’s GDP forecast could slip 10-15 basis points, while Indonesia’s export exposure is lower at 2% of GDP.
Thailand faces more risk, given higher export exposure (8% of GDP) and tariff rates. South Korea’s significant US export exposure (28% of revenue) also tempers optimism, although exemptions for sectors like semiconductors may soften the impact.
Meanwhile, China and India, less exposed to tariffs, remain key overweight positions for UBS, with China’s peak tariff impact believed to have passed and India’s negotiations ongoing.
Valuations in India remain high, and the country is seen as relatively defensive in this environment.
Overall, tariffs remain a key consideration for investors navigating emerging and Asia-Pacific markets, with ongoing uncertainty likely to influence earnings and market performance in the months ahead.