A working paper published by the US National Bureau of Economic Research in 2021 sought to explore the connection between trade tariffs and exchange rates.
It found that sanctions imposed by the US against China in 2018-19 were partially offset by an associated depreciation of the renminbi against the US dollar and suggested around one-fifth of the appreciation of the dollar and two-thirds of the depreciation of the renminbi over this period could be ascribed to these tariffs.
According to Shier Lee Lim, APAC Lead FX & Macro Strategist at FX payments firm Convera, Asian currencies tied to economies with strong trade fundamentals and diversification strategies are poised to show resilience amid tariff-induced volatility.
“The Vietnamese dong and Malaysian ringgit have already demonstrated relative stability, supported by sustained foreign direct investment (FDI) inflows and diversified trade links,” she says. “Conversely, the Chinese yuan (CNY) faces continued pressure from trade tensions and capital outflows, with expectations of USD/CNY remaining above the 7.30 mark in the medium term.”
The Japanese yen continues to serve as a safe haven currency during periods of heightened market uncertainty. Across the region, central bank interventions may temper volatility in currencies such as the Indian rupee and Indonesian rupiah, though the strength of the US dollar may restrict significant gains for regional currencies in the short term.
“With central banks likely to intervene to stabilise local currencies, treasurers should evaluate hedging strategies to manage exchange rate risks – particularly given the expected continued strength of the US dollar,” says Lim.
ING’s Chief Economist for Greater China, Lynn Song, acknowledges that Taiwan’s rising trade surplus with the US should put it in the crosshairs for the next stages of Trump’s tariff actions. However, last week’s announcement that Taiwan Semiconductor Manufacturing Company would invest US$100bn into building chip fabrication plants in Arizona could help delay, if not avert, some of the tariff pain.
“While there are certainly some questions on the long-term impact of such a large investment into the US, it is likely a positive for this year,” he says. “It also doesn’t hurt that there is no shortage of demand for Taiwan’s semiconductors and technology products as the AI race continues – tariffs on products with no suitable replacement would likely see costs borne by US importers.”
Lim reckons the evolving US trade policy landscape has created significant opportunities for South-East Asia.
“As companies diversify away from China, nations like Vietnam, Indonesia and Malaysia are emerging as key beneficiaries,” she says. “These countries, bolstered by regional trade agreements such as the Regional Comprehensive Economic Partnership or RCEP, are well positioned to capture supply chain shifts and sustain export growth.”
The benefits of these shifts remain uneven though. While Vietnam and Malaysia enjoy robust FDI inflows and improved manufacturing capabilities, infrastructure gaps and labour constraints in economies like Indonesia may limit their potential.
Corporate treasurers should monitor supply chain developments closely and consider diversifying operations into RCEP-linked economies. Vietnam and Malaysia, with their growing manufacturing ecosystems, remain standout options for mitigating tariff-related risks.
