Global Risk Indexes (06-02-2025)

Global 98 (0 —)
MENA 98 (+1 ▲)
APAC 97 ( —)
Europe 98 ( —)
Africa 96 (-1 ▼)
AMERs 98 ( —)
Markets 99 (+1 ▲)
Mei Ling, Asia Pacific region analyst at Worldwise Analytica

Mei Ling

Empowering minds, shaping decisions: Insights from the heart of geopolitics

Asia-Pacific on Edge: U.S.-China Trade War Deepens, Currency Shocks, and Regional Power Shifts Challenge Stability

Geopolitical and economic uncertainty in the Asia-Pacific is mounting as U.S.-China trade hostilities escalate, currency markets experience heightened volatility, and regional security tensions grow. The combination of these risks is reshaping the strategic calculus for governments, businesses, and investors across the region.

Trade War Takes a Turn for the Worse

After the U.S. imposed fresh tariffs on Chinese goods, Beijing retaliated with 15% duties on U.S. coal and LNG and 10% on crude oil, farm equipment, and automobiles. While China's response appears measured, the cumulative impact of these moves is disrupting global supply chains and fueling inflationary pressures. The delayed phone call between President Trump and President Xi Jinping underscores the lack of diplomatic progress in de-escalating the trade war, leaving markets on edge.

Financial markets are responding with caution. The Chinese yuan hit record lows against the dollar, reflecting investor concerns over China's economic resilience amid trade tensions. Hong Kong's markets, however, showed some resilience as investors bet on Beijing's ability to mitigate economic fallout. The coming weeks will be critical in determining whether China opts for further retaliatory measures, including restrictions on key technology exports.

Currency Wars: The Yuan's Decline and Policy Reactions

China's decision to set the yuan midpoint at 7.1693 per dollar'its strongest level since November 2024'signals Beijing's reluctance to weaponize its currency in response to tariffs. However, if trade pressures persist, China may have little choice but to let the yuan weaken further. Meanwhile, Japan's yen surged as expectations for Bank of Japan interest rate hikes gained momentum, highlighting the broader economic realignments at play.

For emerging economies in the Asia-Pacific, these currency movements introduce additional layers of risk. South Korea's and Australia's economies remain vulnerable to trade-driven financial shocks, with both nations closely watching U.S. monetary policy shifts that could exacerbate capital outflows.

Strategic Maneuvering in the South China Sea

Amid economic turbulence, military tensions in the South China Sea are escalating. The U.S. and Philippine air forces conducted joint patrols, prompting a swift reaction from China, which deployed naval and air assets to reinforce its maritime claims. The Philippines' increasing alignment with Washington is further straining its already fragile relations with Beijing, raising the risk of direct confrontation in disputed waters.

With Taiwan set to inaugurate a new government in May, regional security dynamics are expected to become even more volatile. Beijing's military posturing around Taiwan and its assertiveness in the South China Sea could trigger a larger security crisis in the coming months.

U.S. Policy Shifts Shake Trade and Business Ecosystems

Washington's decision to revoke the 'de minimis' trade exemption, which allowed duty-free imports of low-value Chinese goods, is already impacting e-commerce giants like Shein and Temu. The U.S. Postal Service's temporary halt on parcels from China and Hong Kong further complicates supply chain logistics, forcing retailers to rethink sourcing strategies. Meanwhile, discussions over adding Shein and Temu to the Department of Homeland Security's 'forced labor' list could deal another blow to China's digital trade dominance.

Energy and Commodity Market Shifts

Goldman Sachs has downplayed the immediate impact of China's tariffs on energy markets, arguing that U.S. exports can be redirected. However, the long-term implications remain significant, particularly for LNG and coal producers reliant on Chinese demand. Australia, a major energy supplier to China, is closely watching these developments, especially as Beijing delays imports of Australian wheat amid a domestic supply surplus.

Political Uncertainty in the Philippines

In domestic political developments, Vice President Sara Duterte is facing impeachment proceedings, further exacerbating political divisions in the Philippines. The rift between Duterte and President Marcos Jr. underscores the fragile nature of the country's political landscape, with potential ramifications for governance and regional stability.

The Asia-Pacific is at a crossroads, with trade, security, and financial risks converging to create an environment of heightened uncertainty. Policymakers across the region must carefully navigate these challenges to avoid further economic and geopolitical disruptions.

Geopolitical Risk Assessment for the Asia Pacific
(06-02-2025)

Geopolitical and economic tensions in the Asia-Pacific continue to intensify as the U.S.-China trade war escalates, regional security dynamics shift, and economic vulnerabilities come to the forefront. The fallout from tariff escalations, currency pressures, and strategic maneuvering in contested waters is compounding instability across the region, with significant implications for trade, financial markets, and diplomatic alignments.

Geopolitical Risk Index

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