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Asia—Trade dependence increases vulnerability to protectionism
Strong exports and investment saw Asia account for nearly 60% of global growth in 2024, despite lacklustre domestic demand. Robust exports (Chart) reflected demand for high-technology products, including a surge driven by artificial intelligence. However, Asia is particularly exposed to trade tensions and fragmentation.
Some of the steepest US reciprocal tariffs announced on 2 April were aimed at Asia, the destination for 82% of Australia’s goods exports in FY2024. A 90-day pause has provided respite, with governments across the region negotiating to secure trade deals with the US before the pause expires on 9 July. China and the US have separately negotiated to lower prohibitive tariffs on each other’s exports. However, trade policy uncertainty will remain high, especially while tensions between the US and China linger. Against this backdrop, the IMF forecasts regional growth to slow to 3.9% this year from 4.6% last year.
In China, despite direct-to-the-pocket demand-side stimulus and monetary easing, the IMF’s GDP growth forecasts were downgraded to 4% this year and next, from 5% last year. Similarly, GDP growth for ASEAN countries was downgraded to 4.1% in 2025 and 3.9% in 2026, from 4.8% in 2024. Trade redirection and production relocation following the rise in US–China trade tensions in 2018 have seen these economies increase their exposure to US demand, heightening their vulnerability to protectionism. In India, which is less open relative to other economies, the growth outlook is more stable at 6.2% in 2025 and 6.3% in 2026, supported by private consumption. While a structural slowdown in Asia would weigh on Australia’s export outlook, the dominance of resources for which Australia is a relatively low-cost producer, limits the effect largely to prices rather than volumes. Lower intermediate input prices that have weighed on business confidence could also result as China redirects trade to open economies such as Australia.
