Asia Pacific economies that are most reliant on exports of high-value-added goods and services to the U.S., which would offer greatest onshoring potential, are the most vulnerable to a potential shift in the trade policies of the world’s largest economy, according to the Inside ASEAN report published by Moody’s.
In Asia Pacific, US exports accounted for the largest proportion of GDP in Cambodia and Vietnam at 19.0% and 15.7%, respectively. Meanwhile, India and the Philippines could also suffer in the event of policies that disincentivized foreign sourcing of business services.
If demand from the US, the largest importer globally, were to slow markedly and durably as a result of a shift in government policies, the economic impact would be amplified through international and intraregional trade. The most open economies would be particularly vulnerable.
Asia Pacific tends to be more exposed to a global slowdown in trade than the Americas. In particular, Cambodia, Hong Kong, Malaysia, Singapore, Taiwan, Thailand, and Vietnam, where global exports account for 50% to 150% of GDP, would be most vulnerable.
US manufacturing FDI in Asia Pacific is typically very small. Singapore has the largest share at 3.7% of GDP in stock terms. Singapore's sizeable amounts of US FDI registered with holding companies – worth 39.2% of GDP – may also be vulnerable, although the real economic impact of US retrenchment in this area would be limited.
Tightening in US immigration rules could curb remittances
A tightening in immigration rules in the US would over time dampen growth in remittances from foreign workers, which are significant for some economies in Asia Pacific.
Worker remittances provide a stable source of foreign-currency earnings that support current accounts, and underpin domestic economic activity by bolstering consumption spending.
For sovereigns that are already facing external pressures, as reflected by wider current account deficits and thinner foreign reserves, or where growth is subdued, a slowdown in remittances would exacerbate such challenges.
Remittances from the US are largest for the Philippines and Vietnam at 3.3% and 3.8% of GDP, and 9.2% and 4.1% of current account receipts, respectively.
The two countries' current account surpluses and ample foreign-exchange reserves would buffer any loss in remittance revenues. In addition, given the size of remittances, only a sharp slowdown associated with a severe and broad tightening of US immigration rules, which we consider unlikely, would have a material impact on private consumption.