By Kimberley Kao and Fabiana Negrin Ochoa

U.S. tariffs will slow growth in Asia this year, but there is a scenario in which the damage will be limited, a top official at the International Monetary Fund says.

If global trade returns to clear rules, the economic blow will be less severe than if tariffs are lowered and new deals are struck--but there is no confidence around how long the peace will last, said Thomas Helbling, deputy director of the IMF's Asia and Pacific Department.

"The uncertainty affects everybody," he said, adding that the duration of that uncertainty will determine how deep of a shock economies ultimately experience.

Talks between the U.S. and countries like Japan and India have raised hopes that the shockwaves caused by the Trump administration's sweeping tariffs may have less of an impact than initially feared. However, no deals with Asian countries have been announced yet, and the deadline to unpause the U.S.'s so-called reciprocal tariffs is fast approaching.

"If trade tensions were to intensify or if uncertainty lasts much longer...investors will hold back," said Helbling.

In that case, countries that have stronger buffers, more policy space, and fewer vulnerabilities such as debt issues will be in a better position to deal with the fallout, he said.

The risk that companies will delay investment and scale back production factored into the IMF's latest economic growth forecasts, which saw it downgrade the outlook for most countries in Asia this year.

"Countries should have a sort of laser focus on macroeconomic and financial stability, and try to address external and internal imbalances, which are often a precursor to vulnerabilities," Helbling said.

Policymakers need to keep their fiscal house in order, the economist added. They need to ensure they have the right buffers in place to intervene as needed, he said, keeping targeted support "limited and realistic about what the budget can afford."

Governments in Asia have already started efforts to cushion against the tariff hits. South Korea last month approved extra spending for chipmakers, while China, Japan and several others have vowed to support businesses and households.

Boosting intra-regional trade can also help safeguard growth longer term, Helbling said. Cross-border trade in Asia is still relatively low and Helbling sees scope for that to ramp up by reducing tariff or non-tariff barriers.

Signs of that have already been emerging.

Chinese leader Xi Jinping traveled to Southeast Asia last month to shore up relations with regional trading partners like Vietnam and Malaysia. At a May meeting of the ASEAN+3 group, which includes Japan, South Korea and countries in Southeast Asia, officials spoke about deepening trade ties and financial cooperation within the region.

There have been rising hopes that tariffs will be scaled back as more signs of progress in negotiations emerge. But even if deals are struck, it could take time for economies and confidence levels to recover.

For agreements to bring back a sense of certainty to global markets there need to be clear demands and clear solutions that restore "a normal state of play, in the sense that policymakers will feel confident that they have reached a resolution, and trade policy will be laid to rest for some time," Helbling said.

Even then, if growth picks up later this year, it's unlikely that all the damage would be undone, he added.

"At the moment [it's] too early to tell how this reset of the global trading system will play out."

Write to Kimberley Kao at kimberley.kao@wsj.com

(END) Dow Jones Newswires

May 08, 2025 06:38 ET (10:38 GMT)

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