Malaysia, India and Philippines to benefit from trade diversion due to US tariffs: Moody’s Ratings

US tariffs could weigh on APAC fiscal and monetary strategies

Malaysia, India and the Philippines will likely benefit from trade diversion owing to US’ reciprocal tariffs as they have been levied with lower tariffs than other economies such as China, Cambodia, Vietnam and Thailand, Moody’s Ratings said on April 9.

The global rating agency noted that countries on whom lower tariffs have been levied could gain market share in the near term.

“Malaysia (A3 stable), India (Baa3 stable) and the Philippines (Baa2 stable), which are subject to tariff rates in the middle band (10 percent-30 percent range), may benefit from some trade diversion activity. Economies in the region with large domestic markets, such as India, could also benefit from companies seeking to access large markets while keeping operating costs reasonable by shifting production to these economies but this would only happen over a number of years,” Moody’s noted.

Moody's defines ratings on a nine-grade scale. A3 signifies upper-medium investment grade, while Baa2 indicates moderate credit risk, Baa3 signifies moderate credit risk as well, but the potential for risk is more than Baa2.

India has been levied with 26 percent tariff by the US, while Vietnam has attracted a 46 percent levy and Cambodia 49 percent. However, Moody’s report notes that India’s exposure might be lower than other countries.

“Direct export exposure to the US is the highest for Vietnam, followed by Cambodia, Thailand and Taiwan, China (Aa3 stable). While Pakistan and Bangladesh have lower overall exposure, their exposure to the US is heavily concentrated in the food, textiles and wood products sectors. Exports in these sectors tend to have higher price elasticities and will, therefore, be more vulnerable to shortfalls in US demand. India also has a relatively low overall exposure but more diversified exports to the US,” Moody’s noted.

China is expected to be more hurt with US levying additional tariffs of 50 percent on the East Asian nation. On April 8, US President Donald Trump announced more tariffs in response to China’s 34 percent levy on all US imports.

The tariff on Chinese goods now stands at 104 percent.

“The escalation in Sino-US trade tensions would be detrimental for the global economy and poses significant downside risks to the region's economic outlook,” Moody’s noted.

Economists have already pared down their growth forecasts for India owing to tariffs. Goldman Sachs and SBI Research believe the impact of tariffs could range from anywhere between 0.2-0.5 percentage points.

India’s central bank, the Reserve Bank of India, on Wednesday reduced FY26 forecast to 6.5 percent from 6.7 percent projected earlier.

Moody’s expects central banks to push the pedal on easing rates to support growth.

“Regional economies will likely promote substitution of US exports with exports to other markets. With inflation near or at target for most economies in the region, central banks are likely to ease monetary policy more quickly to support growth. Meanwhile, tariffs will likely add to deflationary pressures in the region, as products that were previously sold in the US market will now need to be redirected elsewhere,” it said.

RBI, on Wednesday, delivered another 25 bps rate cut, bringing down the policy rate to 6 percent. April marks the second consecutive rate cut by the central bank’s monetary policy committee.

RBI lowered its inflation forecast to 4 percent for FY26 from 4.2 percent projected earlier, providing further support for more cuts.

“The fiscal policy response of governments to mitigate the negative impact of tariffs on growth could also potentially weigh on sovereign credit. Fiscal accommodation would threaten or otherwise disrupt the progress on gradual fiscal consolidation across the

region, although higher debt burdens emerging from the pandemic will likely constrain the extent to which governments could provide support to their respective economies,” Moody’s said.