(Editor's Note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential shifts and reassess our guidance accordingly see our research here: spglobal.com/ratings.)
This report does not constitute a rating action.
Key Takeways
- Asia-Pacific's significant intra-region trade reflects its deep supply chain interlinkages. These may increasingly fragment and reconfigure.
- Tariff and trade tensions complicate the region's trade flows and supply chain landscape. Meanwhile, currency volatility could hit export competitiveness.
- A structural shift in trade flows means some producers will revisit supply chains and business models.
Asia-Pacific is at the nexus of global trade. Its significant intra-region trade is built on the region's complex and tightly intertwined supply chains. Tariffs and trade uncertainty are prompting buyers and sellers in the region to revisit their supply and production chains. S&P Global Ratings believes the reshuffling of these linkages will take time and could be costly.
In our view, three sectors are notably sensitive to the uncertain tariff situation and geopolitical tensions: auto, chips, and rice. We also see some currencies as more prone to foreign-exchange volatility –including to appreciation that weakens exports competitiveness. This and substantial trade exposures between the U.S. and China may elevate vulnerabilities.
Asia-Pacific Trade Ties With China Are Significant
- Over half of Asia-Pacific's exports and imports are to and from within the region (see chart 1).
- As of 2024, the region's exports to China as a share of total exports to China stood at 22% (chart 2a), and for the import equivalent, 24% (chart 2b).
- Australia, New Zealand and Indonesia are three countries with higher export reliance on China relative to other markets in the region (see chart 2a).
- In contrast, the bulk of the region's markets (Southeast Asia, Japan, and Korea) have relatively higher import reliance on China (see chart 2b).
Chart 1
Chart 2a
Chart 2b
Indirect Effects Matter Too
- Volatility across the region's currencies and spreads further complicates the macro-credit landscape (see charts 3a and 3b).
- Sharp gains in some Asia-Pacific currencies may become a negative for export competitiveness, including for commodity exporters; we note that most of the region's currencies remain cheap on valuation benchmarks.
- Lingering tariff uncertainty could strain lenders' risk appetite, keeping Asian corporate spreads elevated (see chart 4).
Chart 3a
Chart 3b
Chart 4
Sector Screens: Autos, Tech, And Rice
- Persistent tariffs could hit top auto exporters such as Japan and South Korea, prompting the relocation of manufacturing bases and hurting price competitiveness (see chart 5).
- Chips are at the cornerstone of the global technological competition. With the bulk of the technology supply chain residing in Asia, gaining control of these assets as part of strategic interests will raise stakes for the sector (see chart 6).
- Geopolitical tensions could derail agriculture supply chains. An escalation in hostilities between India and Pakistan could disrupt the supply of rice, a staple for Asia-Pacific, affecting those reliant on rice imports from these markets (see chart 7).
Chart 5
Chart 6
Chart 7
U.S.-China Trade Uncertainty Still High Despite Recent De-Escalation
- While U.S.-China trade tensions have calmed somewhat, tariffs on Chinese exports remain high. This could knock on Chinese growth.
- Commodities highly exposed to Chinese demand will be challenged; this includes exports of Australian iron and aluminum ore (see chart 8).
- Meanwhile, strategic competition between the U.S. and China is prompting efforts to reduce reliance on key imports, including U.S. soybeans and toys made in China (see charts 9 and 10).
- Trade redirection could accelerate as businesses continue to diversify revenue sources and suppliers to manage costs, and new manufacturing hubs may develop.
- However, the reshuffling of supply chains and production is difficult and costly and takes time.
Chart 8
Chart 9
Chart 10
Digital design: Evy Cheung
Editor: Cathy Holcombe
Related Research
- Global Credit Conditions Special Update: U.S.-China Tariff De-Escalation Brings Some Temporary Relief, May 15, 2025
- Credit Conditions Asia-Pacific Special Update: U.S.-China Ties In Uncharted Territory, April 15, 2025
| Authors: | Eunice Tan, Singapore 65-6530-6418; eunice.tan@spglobal.com |
| Christine Ip, Hong Kong 852-2532-8097; christine.ip@spglobal.com | |
| Research Contributor: | Sushant Desai, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai ; |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.