Read here our latest EcoPerspectives Emerging Economies
Hello everyone and welcome to “MacroWaves” the BNP Paribas Economic Research podcast that helps you better understand current economic events. Three times a year, the Emerging Economies team at Economic Research publishes its EcoPerspectives. This is an opportunity to focus on a few major emerging economies such as China, India, South Africa, and Brazil, but also Mexico, Chile, Thailand, and Hungary. EcoPerspectives provides an overview of the specific challenges facing these countries, their growth forecasts, and more. On the occasion of the publication of the second quarter issue, three members of the Emerging Economies team speak in “MacroWaves”: Cynthia Kalasopatan Antoine, Lucas Plé, and Christine Peltier.
EcoPerspectives dedicated to emerging economies in the second quarter of 2025 focuses on the tariff shock triggered by the US administration and its effects on emerging economies.
In this podcast, we will review the consequences of US tariff increases on global growth, on international trade dynamics, and the reorganization of global value chains. We will assess the effects of these potential changes on emerging countries.
Emerging countries will suffer negative effects linked to the slowdown in their export growth and increased competition from Chinese products. But they could also benefit from new opportunities to attract FDI.
- Christine, let's start with a general question: What are the effects of the US administration's tougher tariff policy on global trade and emerging economies?
The Trump administration's trade policy is first and foremost characterized by a sharp increase in tariffs, particularly on Chinese products.
For all other countries, the additional tariffs are currently 10%. But in reality, the effective tariff rates vary considerably from one country to another, depending on the structure of each country's exports to the US.
Emerging Asia is currently the hardest hit, while commodity-exporting countries are the least affected by the new tariffs.
The increase in tariffs will lead to a slowdown in US demand and global demand, as well as a shift in trade flows. For emerging countries, the effects will be significant. On the one hand, their exports will slow down. On the other hand, as China will reroute its goods to other markets than the US, many countries will face increased competition from Chinese products in both their domestic and export markets.
However, some emerging countries will also benefit from the reconfiguration of global trade and value chains. They should attract foreign direct investment and develop their manufacturing production and export base.
2. Let's start with China. How is China responding to the US tariff shock and what are the consequences for its economy?
China has implemented a strategy to reduce or offset the negative effects of US tariffs.
In the short term, this strategy is first based on strengthening domestic demand. The Chinese authorities therefore continue to ease their monetary and fiscal policy, with a particular focus on stimulating private consumption.
This objective of strengthening household consumption will be difficult to achieve. China is facing deflationary pressures. Private sector demand remains sluggish due to the crisis in the real estate sector. It could also suffer from the impact of the expected slowdown in the manufacturing sector on the labor market.
China's strategy also including the rerouting of exports to other markets.
Last spring, the decline in Chinese exports to the US was already offset by a large increase in exports to other regions. This shift will continue, but could quickly run into protectionist reactions from trade partners, where a few sectors may suffer from rising Chinese competition.
3. The US tariff policy could also lead to a reconfiguration of global value chains. Will there be winners and losers in this reconfiguration?
We can expect further reconfiguration of global trade, as was the case during Trump's first term, at the start of the trade war between the US and China. At that time, countries such as Mexico and Vietnam benefited from trade tensions. They have positioned themselves as “connector” countries, which are countries through which Chinese goods transit, are transformed and then are re-exported to the US.
In the short term, the tightening of US trade policy is likely to limit FDI in these countries: in the case of Vietnam, for example, the country is likely to be forced to limit the rerouting of Chinese goods in order to avoid punitive tariffs on its exports to the US.
However, in the medium term, Chinese and other multinational groups are likely to continue their policy of diversifying their production chains. FDI will flow to countries offering the best conditions, namely: a skilled and competitive workforce, attractive taxation, a manufacturing sector already integrated into global value chains, and high-quality logistics infrastructure. Factors such as geographical and geopolitical proximity must also be taken into account.
In this regard, Thailand, Malaysia, and India have some advantages and could benefit from new FDI. In Central Europe, Hungary is already the leading recipient of Chinese FDI, while the Czech Republic and Poland are also well positioned. Across the Atlantic, Latin America could leverage its abundant natural resources to attract new Chinese FDI.
4. Let's go back to the two examples of Asian countries, Thailand and India, which are affected to varying degrees by the consequences of US trade policy changes. What can we say about them?
Thailand is one of the Asian countries most vulnerable to the US trade war. It could suffer both from the weakening of its exports to the United States and the sharp rise in imports of Chinese goods. The automotive sector, in particular, is vulnerable to strong competition from Chinese carmakers.
However, Thailand could benefit from new investment from foreign groups looking to diversify their production chains. Thailand has strategic advantages at the regional level, such as a high level of education, well-developed infrastructure and a manufacturing industry that is already well integrated into global value chains.
By contrast, India will be less affected by the direct effects of the rise in US tariffs because of its low dependence on foreign trade. In addition, India could benefit from the reorganisation of value chains thanks to its dynamic demographics, educated workforce and competitive wages, but its manufacturing capacity remains underdeveloped and FDI flows are low, concentrated in services. Structural reforms are progressing slowly, which will limit its ability to take full advantage of the situation.
5: Speaking of Latin America, how is Brazil positioning itself in the face of the US tariff shock?
Brazil faces the risk of a slowdown in its exports to the United States, particularly in the steel sector. 60% of Brazilian steel exports go to the United States, which has applied a 50% tariff since the beginning of June. That said, the direct impact of the US tariffs is likely to remain limited overall, given the US's moderate share in Brazil’s total exports.
Besides, Brazil is one of the countries likely to benefit from a reconfiguration of world trade flows. Since April, we have seen changes that are beneficial to the country. China has already redirected some of its purchases of soya, meat and oil from the United States to Brazil. In addition, the trade war launched by President Trump should encourage Brazil and its neighbours to strengthen their integration within Mercosur. Brazil could also speed up negotiations on free trade agreements with the European Union, as well as with Mexico and Canada. In the medium to long term, the country has several strategic advantages to attract relocations, including direct access to a range of strategic raw materials and a low-carbon energy mix.
6: Now let's cross the Atlantic and talk about South Africa. Relations with the United States have been very tense since the beginning of the year, what can the country do about it?
Well, South Africa is pursuing a policy of non-alignment, which is a source of diplomatic tension with the United States. These tensions fuel the risk of high tariffs on South African exports. In any case, South Africa is likely to be permanently removed from the list of beneficiaries of AGOA, a US law that gave 32 African countries preferential access to the US market for a wide range of export goods. The South African automotive sector was a major beneficiary of this law, and is therefore the sector most threatened by an increase in US customs duties.
The South African authorities are currently negotiating with their American counterparts to obtain certain exemptions. In particular, they want quotas so that they can continue to export a certain number of cars at preferential rates. In exchange, the South African authorities have offered to import American LNG and to incentivize American investment in mining exploration. These two proposals were favourably received by the US administration, given that South Africa is a major supplier of critical minerals to the United States.
Regardless of the conclusion of negotiations with the United States, in the future South Africa could redirect its exports thanks to the potential opening up of the Chinese market. China recently announced its intention to lift tariffs on all imports from Africa.
8. Now a word about Türkiye, with Cynthia. What is Türkiye’s current economic situation and what impact is the US tariff policy having on its exports?
GDP growth accelerated again late 2024 and early 2025 and was mainly driven by domestic demand while exports remained stable. Going forward, the Turkish economy is expected to slow down due to financial tensions, the impact of US tariff hikes and a more restrictive fiscal policy.
On Trump 2.0, the effective rate of US tariffs applied to Türkiye is substantial. That said, exports to the US account for only a small share of GDP, that is 1.3%. The direct impact on GDP is marginal. The main threat is indirect, as Turkish products compete with Chinese products on the European market, which is the main destination for Turkiye’s exports (Exports to European markets represent 41% of total exports).
Meanwhile, the significant appreciation in the real exchange rate of the lira may cause Turkish exporters to lose market share in this key market.
Turning now to Central Europe, how are Hungary and Slovakia affected by the US tariff measures and the changing dynamics of world trade?
To answer to your question Lucas, well, Central European countries are very open to trade and will also be affected by the rise in US tariffs, even though their trade deficit with the United States is marginal.
Hungary is one of the most exposed Central European countries.
Even if t he share of exports to the United States is low, Hungary is indirectly and more strongly affected by its major trade link with Germany.
Moreover, China is both a competitor (mainly for machinery and transport equipment) and a key partner in terms of Foreign Direct Investment flows. Hungary has and should continue to attract major Chinese investment in the automotive and electric battery industries.
Slovakia, like Hungary is also one of the most exposed Central European country to US customs measures, mainly due to the concentration of its exports in the automotive sector. This sector indeed represented about 77% of Slovakia’s exports to the US in 2024. Slovakia is also facing an indirect effect via the expected fall in demand from Germany, its main trading partner. Reorienting exports towards other markets is a complex task, given Slovakia's sectoral specialisation and competition from China in the automotive market. However, in the medium term, the German investment plan and FDI flows, including those from China in the electric vehicle and battery sectors, could offer new sources of growth.
Finally, Cynthia, there's still one region of the world that we haven't covered, and that's the Middle East. Can you tell us about the economic situation in the United Arab Emirates? The Emirates seem to be relatively unaffected by the upheavals in world trade, can you tell us why?
Yes, indeed, Lucas, the United Arab Emirates is "spared overall by D. Trump's trade policy. However, the economy is the "most sensitive in the region to the slowdown in world trade" due to its high degree of openness to trade. Exports of goods and services are above 110% of GDP.
Despite this, growth prospects remain "solid" at 4% in 2025, driven by economic diversification, the country’s attractiveness to foreign investment and public support. The UAE is increasing the number of economic partnership agreements to strengthen its position as a trading platform and guard against geo-economic fragmentation.
So we see that the tariff shock from the Trump administration is creating an uncertain economic environment for emerging countries. While some, such as the UAE and Brazil, seem in a better position to navigate this turbulence and seize new opportunities for trade reorientation, others, such as Mexico and Slovakia, face greater challenges due to their high trade dependency and sectoral specialisation. The ability of these economies to adapt their policies and attract strategic investment will be crucial to their resilience.
Thank you to all our listeners for tuning in to this special edition dedicated to emerging economies. You will find a link to the latest issue of EcoPerspectives in the description. In light of the US tariff shock, our economists provide a country-by-country analysis.
Thank you all.
We remind you that you can find analyses from our team of economists throughout the year on the BNP Paribas economic research website.
See you soon!
