How would developing Asian economies fare if America imposes punitive “reciprocal tariffs” announced on April 2 in the current quarter while its trading partners retaliate with tariff hikes equivalent to 50% of the US tariffs?

China’s GDP growth, according to Asian Development Bank ( ADB ) simulations released on April 9, would decline 0.4 percentage points from the bank’s latest baseline forecast of 4.7% for this year.

The impact would more than double to 0.9 percentage points next year when China’s growth is projected to slow to 4.3%.

For the rest of developing Asia, the impact would be a GDP decrease of 0.2 percentage points from the forecast of 5.0% for 2025, quadrupling to 0.8 percentage points from the forecast of 5.1% in 2026.

Effect most pronounced in US

At the same time, US growth, the ADB says in its Asian Development Outlook for 2025, would be reduced by 1.0 percentage points this year and 0.6 points next year — with about 35% of the impact due to retaliatory measures.

“Retaliation reduces growth across all economies, according to the model results, with the effect most pronounced in the US,” the outlook says. “These impacts are mainly driven by a global trade slowdown, which translates into weaker business and consumer sentiment, lower aggregate demand and reduced economic activity.”

Given modelling limitations, however, the bank admits that its simulations should be interpreted cautiously. For starters, the analysis focuses on the impacts of higher tariffs alone, without incorporating the dampening effects of possible policy responses.

“Policymakers in the region and elsewhere,” the ADB notes, “may elect to counteract the recessionary impacts of higher tariffs by pursuing expansionary policies, such as easing monetary policy, more strongly than projected in this analysis or boosting fiscal support.

“Second, the simulations do not account for the potential effects that escalating trade tensions can have on trade diversion and reallocation in supply chains. As evidenced by previous trade tensions and other geopolitical shocks, economies may develop new trade linkages when faced with shifting trade barriers.

“Third, the very high levels of trade policy uncertainty – currently at all-time highs – are likely to dampen domestic and foreign investment, as would a rise in financial volatility and global risk aversion, and these are not accounted for in the model simulations.

“Finally, an important corollary to all this is that the baseline forecasts should not be mechanically adjusted down by the estimated impacts of the tariffs.”

Medium-term need to diversify markets

Policymakers, the ADB points out, need to account for the negative consequences of retaliation when they consider whether – or to what extent – they should retaliate.

“As much as possible, negotiating to ease tensions and reduce tariffs should be pursued,” the bank adds. “More generally, developing Asian economies should remain committed to open trade and investment, bolstering economic integration, reconfiguring supply chains to adapt to new tariffs, and seeking new trade agreements among themselves and with third countries.”

If the US tariffs significantly erode growth, “easing monetary policy could be appropriate since many regional economies now have inflation at or below target.”

For economies with the budgetary room, “supportive fiscal measures can be used, especially to assist more vulnerable populations,” the ADB shares. “Finally, over the medium-term, economies should endeavour to diversify export markets to reduce concentration risk.”

The growth forecasts for developing Association of Southeast Asian Nations ( Asean ) economies in the ADB’s latest outlook show that Vietnam, Cambodia and the Philippines remain the fastest-growing.

The forecasts – made before US President Donald Trump’s tariff announcement on April 2 – show GDP growth of 6.6% this year and 6.5% next year for Vietnam, 6.1% and 6.2% for Cambodia, and 6.0% and 6.1% for the Philippines.

Slower growth is seen for Indonesia ( 5.0% this year and 5.1% next year ), Malaysia ( 4.9% and 4.8% ), Laos ( 3.9% and 4.0% ), Thailand ( 2.8% and 2.9% ) and Myanmar ( 1.1% and 1.6% ).

For the richer Asean economies, growth rates of 2.6% and 2.4% are forecast for Singapore, and 2.5% and 2.0% for Brunei.