Asian Economies Should Increase Regional Integration: IMF
Export prices, excluding China, have largely stayed firm, suggesting that most exporters have not cut prices in response to tariffs, with exceptions in some sectors such as Japanese car exporters
Chennai: Higher US tariffs and increasing protectionism will likely reduce demand for Asian exports and growth in the near-term. Hence, policies should focus on increasing regional integration by reducing barriers to trade and investment, and boosting productivity growth, finds the IMF.
Growth in Asia-Pacific region is projected to hold steady at 4.5 percent relative to 2024, and to decrease to 4.1 in 2026, as per the projections of IMF. Economies in the Asia-Pacific region have been resilient in 2025, posting stronger-than-expected economic growth in the first half of the year amid external and domestic challenges. Nevertheless, higher US tariffs and increasing protectionism will likely reduce demand for Asian exports and eventually weigh on growth in the near-term.
Export prices, excluding China, have largely stayed firm, suggesting that most exporters have not cut prices in response to tariffs, with exceptions in some sectors such as Japanese car exporters. Purchasing Managers Index (PMI) of new export orders mostly remain subdued since April. The impact of the tariffs will continue to be felt in the region, with recent ones—like the increase on India in August 2025—requiring time to assess their full impact.
Amid these forces, policies should focus on increasing regional integration by reducing barriers to trade and investment and boosting productivity growth with better financial intermediation and allocation of capital, said IMF.
Additional measures to support the services sector, mitigate the impact of population aging, and upgrade policy frameworks are critical for resilient and sustainable growth, and would help prepare for future shocks.
Trade friction with the United States and the strong artificial intelligence (AI)-driven tech cycle have contributed to rising intra-regional trade. China’s exports to the US, as a share of its total exports, have continued to decline, furthering the trend of diversification since 2018, while the share to Asian trade partners has increased, largely reflecting a redirection of intermediate goods to ASEAN for further processing.
However, there is little evidence that plain trade rerouting is driving these shifts similar to the 2018 tariffs episode. The increase in intraregional trade has also been supported by Asian advanced economies— particularly Korea, Japan, and Taiwan, whose exports have benefited from the AI-related global investment boom and related demand for tech products.
Other Asian emerging markets, particularly in the ASEAN, have also increased their export shares to both China and other Asian economies in 2025, likely facilitated by free-trade agreements and infrastructure connectivity projects. FDI into ASEAN economies has stayed strong and announcements of future investment suggest that companies continue to pursue supply chain diversification in the region.
