Tariff pressure raises economic stakes

Trade pressure across the region has intensified after the United States sent a series of letters to more than a dozen economies around the world in July, including South Korea, Thailand, Indonesia and Malaysia.

The letters outline plans from the US to impose higher tariffs on the recipient economies unless new trade deals are finalised by August 1. Timed just ahead of an earlier July 9 deadline, the letters outlined potential tariffs ranging from 25 per cent to 40 per cent unless bilateral agreements are reached, higher than the existing, universal 10 per cent rate currently imposed. The scale of these increases underscores the economic stakes for recipients.

South Korea, Thailand, Indonesia and Malaysia have signalled active engagement, and markets have remained calm in the anticipation of continued negotiations. The implied cost of failing to secure terms before the deadline is steep, particularly for Thailand.

The US has also threatened to impose a 50 per cent import tariff on copper products, and up to 200 per cent for pharmaceuticals. India and Singapore would be the most vulnerable to tariff hikes on pharmaceuticals within the local region.

^{Source: White House}

Pressure

The pause from July 9 to August 1 appears to be a calculated negotiation tactic — designed to increase the pressure on trading partners to accelerate talks and offer deeper concessions. Notably, financial markets have not overreacted, suggesting investors view this development as part of a broader negotiation strategy and expect trade deals will eventually be reached.

Should no deal be reached by the deadline, the effective US tariff burden on target economies could rise sharply. Based on current estimates, South Korea’s effective tariff rate would increase from 15 per cent to 20 per cent, Indonesia’s from 10 per cent to 29 per cent, Thailand’s from 9 per cent to 24 per cent, and Malaysia’s from 6 per cent to 14 per cent. These estimates assume product exemptions under the reciprocal tariff framework announced in April.

South Korea’s Industry Ministry said it viewed the letter as a “de facto extension” of the grace period and pledged to accelerate talks, including revising domestic rules to address the US’ concerns over non-tariff barriers. It also stressed any final deal should include sectoral tariffs. The bulk of the burden on US tariffs on South Korea’s economy has stemmed from sectoral tariffs, particularly the auto sector.

Thailand’s Finance Minister Pichai Chunhavajira has expressed optimism continued dialogue will yield a more favourable outcome before the August deadline. He noted the US may not yet have factored in its revised offer that was submitted on July 6, which includes increased purchasing from the US, cutting tariffs on 90 per cent of US products and reducing its $US46 billion trade surplus with the US by 70 per cent within five years.

Thailand has previously indicated it is pushing for a 10 per cent reciprocal rate and views a 10 per cent to 20 per cent final rate as acceptable.

Indonesia is reportedly in active negotiations, with Coordinating Minister for Economic Affairs Airlangga Hartarto reportedly visiting Washington on July 8. The Indonesian government has submitted proposals twice to the US, with the most recent being a $US34 billion deal involving purchasing and investment commitments as well as a removal of import tariffs on 70 per cent of imports from the US.

Malaysia’s Ministry of Investment, Trade and Industry (MITI) has signalled continued engagement with the US towards a mutually beneficial trade agreement, noting there are still opportunities to lower the US tariff rate. Previously, the MITI aimed to lower the tariff rate to below 10 per cent for critical sectors.

At stake

ANZ Research remains cautiously optimistic these economies will be able to avoid the higher reciprocal tariffs outlined in the latest letters. But it is likely they will face rates higher than what are currently implemented.

The Vietnam-US trade agreement announced in July 2025 likely serve as an important benchmark during negotiations. These economies will seek a more favourable tariff arrangement than the 20 per cent rate achieved by Vietnam, especially given Vietnam’s larger trade surplus with the US.

The implied cost of failing to secure more favourable terms before the deadline will be particularly steep for Thailand, given both a high reciprocal tariff rate (36 per cent) and its heavy dependence on US demand (exports to the US accounted for 10 per cent of gross domestic product in 2024).

For the time being, proposed tariffs on copper and pharmaceutical are worth keeping an eye on.

The copper tariffs could reportedly come as soon as end of July, while the pharmaceutical tariffs could be delayed up to 18 months to give drugmakers time to relocate production to the US before the levies take effect.

Within Asia, copper products make up a small share of exports to the US. Pharmaceutical tariffs are the biggest threat, particularly for India and Singapore. In 2024, the sector made up over 10 per cent exports to the US for India and more than one-third for Singapore.

Krystal Tan is an Economist, Asia at ANZ Research

This is an edited version of the ANZ Research report, “Tariff pressure builds on Asian economies”, published July 9, 2025.