North Asia will be hit the hardest when U.S. president-elect Donald Trump follow through on his promises on more restrictive trade policies, Goldman Sachs analysts wrote in a note released on Friday.
"The likelihood of no action on trade seems low given the consistent message during the campaign, the policy platform on the President-elect's webpage, and the hawkish orientation of the officials who have been nominated to trade-related positions in the incoming administration," wrote the analysts.
The investment bank's economist estimate that U.S. import cuts would reduce economic activity in Asia about 2.6 times the extent of the cuts.
"China has the highest production multiplier (at three times), but Taiwan and South Korea would have the most negative economic impact due to their greater reliance on trade," the analysts added.
A U.S. import cut of 1 percent of GDP (about 7 percent of U.S. imports) could cause output losses of nearly 1 percent of GDP for Taiwan and South Korea and 0.6 percent of GDP for China, they estimate.
A 5 percent drop in U.S. imports could lead to an 8 percent decline in the regional MSCI AC Asia Pacific excluding Japan Index, they project.
Here are the areas most vulnerable to trade barriers:
The “usual suspects”: China, steel, chemicals
Domestic U.S. firms have filed frequent complaints to trade officials over dumping and foreign subsidies with China accounting for a third of investigations in response to the feedback.
Largest bilateral imbalances: China, Mexico, computers, motor vehicles, apparel
The U.S.has the largest trade deficit with China at $367 billion in 2015, followed by the EU, Japan, Mexico and South Korea. China primarily accounted for the trade deficits in computers, electrical equipment and apparel—three of the top five sectors. The trade deficit in transportation (motor vehicles) is mainly with Mexico, Japan and EU; while that in oil, gas and minerals is with Canada and the Middle East.
Indirect linkages through global supply chains: Taiwan, South Korea, Malaysia
These regions will be exposed to the spillover effect from any action on China. "While the finished goods are assembled in and exported from China, some intermediate inputs are sourced from other countries. Approximately 40 percent of Taiwan, Malaysia and Korea exports to China are processed for re-exports."
"These economies will likely be adversely affected even if the trade restrictions are imposed on China only, as their supply chain exports are large relative to the size of their economies," wrote the analysts.