Supreme Court Tariff Shock- EMs Win, DMs Lose

• As betting markets had expected, the Supreme Court of the US (SCOTUS) struck down President Donald Trump’s ‘reciprocal’ tariffs, which he justified by emergency powers under the International Emergency Economic Powers Act (IEEPA). Since SCOTUS’s decision, Trump has raised Section 122 tariffs on all imports from 10% (announced on February 20) to 15%, effective February 24, 2025, in line with expectations for renewed tariff volatility after the ruling.
• The good news is that Trump can legally go no further under Section 122 than the 15% he has now imposed. The bad news is that uncertainty will remain elevated as the Section 122 tariffs are subject to review by Congress after 150 days. Meanwhile, Trump retains options under Sections 232 and 301 to impose further tariffs and could seek to build out a patchwork of sector‑specific measures to offset the temporary nature of the Section 122 tariffs.
• Notwithstanding those open questions, the developments so far warrant a fresh estimate of the growth impact on Asian economies of these tariff changes. The chief result is that while Emerging Markets (EMs) are generally better off in terms of GDP growth, most Developed Markets (DMs) are slightly worse off. The main reason is that exports from DMs such as Singapore and Australia now face a higher 15% tariff rate under Section 122, compared with the 10% ‘reciprocal’ tariffs under IEEPA. By contrast, tariffs on exports from EMs including India and Vietnam are now lower.
• BMI analyst presents three possible impact scenarios, depending on how much of the tariff savings are passed on to consumers, and the degree to which consumers respond to those savings by buying more imported goods. Conservatively, the agency believes the growth impact on Asian economies will fall short of the ‘100% passthrough, high elasticity’ scenario.
• Asian governments’ reactions introduce an additional downside risk to these growth estimates. Most regional governments have responded cautiously, emphasising continuity of existing tariff outcomes while privately flagging legal uncertainty around trade deals struck with Trump under IEEPA. Japan and Singapore have framed the Section 122 tariffs as largely preserving previously agreed 15% ceilings, but both have sought clarity on implementation and refunds, underscoring lingering uncertainty. Similarly, Jamaica now faces higher tariffs of 15% up from 10%.
• By contrast, South Korea and India have stressed that earlier deals rested on a legal foundation that no longer exists, raising the risk of delayed investment decisions and renewed bilateral negotiations. China has gone further, arguing that arrangements derived from unlawful tariffs lack legitimacy altogether. Taken together, these reactions point to a risk that policy uncertainty persists for longer than currently. This would weigh on corporate confidence and dampen the pass-through from lower tariffs to trade volumes, particularly in export‑dependent Asian DMs.

(Source: BMI, A Fitch Solutions Company)