Beyond the tariff effect

If there’s one thing economies across Asia have shown they can do, it’s adapt.

I have just returned from a week in Hong Kong, Tokyo and Seoul. There was general agreement these markets are likely to see increased investment as tariffs make the United States a less attractive destination. But there was also a degree of introspection, and a watchful level of hesitancy about the world.

That feeling was perhaps most acute in Hong Kong. My visit straddled the China/US agreement that saw a delay to the most punitive tariffs. Certainly there was a ‘before and after’ effect, but it was deeper than that.

Obviously, Hong Kong's business structure is set up around the US and China as its biggest customers. I didn't find anyone whose scenario plans included the sort of face-off we've seen over the past month or so. There seems to be work going on to rethink what sort of outcomes are feasible in this new geopolitical environment the world finds itself in.

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In Japan, motor vehicles and energy were the topics that came up the most. There are some real challenges for this critical sector, which represents around 20 per cent of Japanese exports. The industry seems to be a bit of a pet one for the US, which is eager to get some production back on its shores.

Japan has always been reliant on external sources of energy, importing more than 80 per cent of its needs. Fossil fuels are easily transportable, but renewables less so. Security of energy supply is becoming increasingly important.

In Korea, energy and vehicles are also a topic of discussion, with an additional dynamic around politics. The past six months in Korea have been unsettled, but there is a presidential election in the first week of June. Many are hopeful, and expectant, that will result in a more stable environment.

I'm coming away from my trip to the region more optimistic than the feeling on the ground. There are undoubted challenges because of the shifts in geopolitics. But if there's one thing Asia has shown itself able to do, it's adapt. There's great muscle memory in all these economies around the ability to change when required.

The allocation of capital likely to be coming the way of these markets is only going to help that process.

Richard Yetsenga is Group Chief Economist and Head of Research at ANZ