Bullishness shapes America’s Asia ambitions

Having recently returned from a trip to Washington DC and New York, I was reminded of America’s reputation for bullishness.

Growing US tariff revenue is giving confidence to Washington policymakers that they can achieve significant budget repair. They know most trade partners either can’t find a commensurate alternate market or in some cases are worried about the security implications of responding to US tariff increases. The new revenue stream, assuming it lasts, will be hard for either side of politics to walk away from.

Much of this confidence stems from the US government’s recent tariff windfall. US Treasuries collected US$29.6 billion (AUD$45.2 billion) in the first 22 days of August, equalling the previous month and lifting total tariff revenue to around US$182 billion for 2025. US Treasury Secretary Scott Bessent expects a stronger bump in August, and an even better result in September.

While estimates vary on exactly how much the US government will collect annually from tariffs – a job made harder by the constant tinkering – Republicans were initially aiming for around USD$500 billion. But now, Bessent is entertaining something approaching one trillion, potentially half the US budget deficit.

It’s worth remembering that the Biden Administration kept much of the tariff regime from Trump’s first term in place. If the Democrats win in 2028, history could repeat.

This is crucial context for those hoping that the tariffs will be struck down by the US courts. There are other statutes available, and the political will to prioritise a fight back against tariffs doesn’t yet exist.

What I also learned was that many Republican lawmakers are still genuinely focussed on the deficit, even though they passed the Big Beautiful Bill. So if tariff revenues do drop for any reason, we should expect renewed interest in cuts to bureaucracy, as well as unorthodox revenue raising tools such as impoundment, where the President will be able to decide whether to spend funds appropriated by Congress.

Asia and US allies and partners accept pay-to-play and pay-to-protect reality

There’s increasing acceptance in Asian capitals – though notably not Beijing – that they must ‘eat the tariffs’. Trade with the US is now a pay-to-play and/or pay-to-protect system.

The risks from tariffs are acute – lower export revenue and foreign direct investment, supply chain disruptions and currency volatility all loom as possibilities. And a weather eye should be kept on how the US follows through on its 40 per cent transhipment tariffs.

Indonesia and Vietnam signed deals with the Trump Administration early to reduce tariffs in exchange for pledges to buy American goods. The rate at which their tariffs were set, 19 per cent and 20 per cent respectively, stoked fears that higher tariffs could hit elsewhere in the region.

These fears largely didn’t materialise. Thailand, Malaysia, Cambodia and the Philippines all joined Indonesia on 19 per cent. Australia was left at 10 per cent amid a backdrop of loosened import restrictions on beef, while New Zealand’s tariff rate rose to 15 per cent. Japan and South Korea both secured deals of 15 per cent, again in exchange for pledges to buy varying amounts of US goods and invest in the US. India was the regional outlier on 50 per cent (a combination of reciprocal and ‘secondary’ tariffs) amid challenging trade negotiations and a scuffle over Russian oil purchases.

The Trump Administration could overturn the deals, which are executive branch agreements, at any point to secure even more favourable terms. One argument is the deals are not worth the paper they’re printed on. So why sign them?

Some insight can be found in Europe.

The European Union has been remarkably transparent that these deals are being signed, in part, to keep the US engaged in European security issues.

“It’s not only about the trade,” EU Trade Commissioner Maroš Šefčovič said. “It’s about security. It’s about Ukraine. It’s about current geopolitical volatility. I cannot go into all the details.”

The governments of Japan, South Korea and the Philippines similarly aren’t going into such “details”. Privately they will have Asia’s security and stability front of mind as part of tariff negotiations.

Cause and effect

Historically, tariffs have been shown to be inefficient and ineffective over the long-term. Countries that trade with you will find alternative paths to market, under-invoice goods that are tariffed and manipulate processing fees for goods that aren’t.

Asian economies, though not a replacement to the US market, can and will now trade more with each other.

Framework trade agreements are also not taking place in a vacuum. China’s market is not analogous enough to replace America’s, but Beijing is using the opportunity to position itself as a more stable trading partner that is standing up for free trade, while emphasising American unreliability.

Increased competition between the two superpowers may not bode well for the regional stability and trade predictability Asian economies are looking for. But it’s also the case that neither side is willing to engage in mutually assured economic destruction.

America walked back the 145 per cent tariffs on Chinese exports to their current levels of 30 per cent, which was followed by an opaque agreement to allow certain semiconductor technologies and rare earth minerals transfers. On August 12, this was extended by another 90 days.

A narrow trade deal with China on tariffs and rare earth is increasingly likely. Cabinet-level officials from both sides have met at least six times since May and are discussing a possible Trump-Xi meeting in Q4 2025, where such a deal could be signed. This benefits the whole region.

President Trump is trying to strike a balance between reducing trade deficits, reshoring strategic industries, increasing tariff revenue and competing with China. No mean feat. Elevated tariffs on China+1 countries and strategic sectors are reshaping global supply chains and investment patterns, while accelerating US-China decoupling.

Sector tariffs – in particular pharmaceuticals and semiconductors – and possibly more ‘secondary tariffs’ will feature in the next stage of Trump’s trade policy now that most major trade partner agreements are in place. Bullishness indeed.

Cameron Mitchell is ANZ Head of Geopolitical Risk.