Asia Pacific weathers tariff storm

THE global credit landscape is shifting, and tariffs are leading the charge.

As trade tensions rise and economic uncertainty bites, businesses around the world are navigating a more turbulent environment. But not all regions are equally exposed.

A new report from Moody’s Ratings offers fresh insight into how tariffs are reshaping credit risks – and it turns out that Asia Pacific is faring better than most.

Moody’s Ratings has assessed nearly 3,500 rated non-financial companies worldwide, zooming in on how tariffs are affecting credit via three channels: trade, macroeconomic conditions and financial markets.

Their latest analysis focuses on around 450 rated firms in Asia Pacific, and the verdict is cautiously optimistic.

“US-tariffs related risks have a limited effect on most Asia-Pacific rated companies’ credit strength,” the report notes. Just 6% of rated companies in Asia Pacific have overall high exposure to tariff-related risks – the lowest globally.”

By contrast, that figure stands at 18% in North America, 13% in Latin America and 10% in Europe, the Middle East and Africa. The low exposure is largely due to the region’s strong fundamentals.

“Rated companies in Asia Pacific are spread across 17 markets that generate close to a third of the world’s gross domestic product,” Moody’s states.

Low exposure

Many of these companies are dominant in their local markets, with globally diversified supply chains and limited reliance on US trade.

In fact, 86% of rated Asia-Pacific companies have low trade exposure to the United States, meaning less than 10% of their revenues or costs are directly impacted by US tariffs.

Only 1% of companies, mostly in shipping and consumer products, have high trade exposure.

This insulation isn’t accidental – it’s structural.

“Most rated companies in Asia Pacific have large domestic operations. Those with exports have globally diversified businesses and supply chains,” the report says.

And for some, a US manufacturing base helps mitigate tariff pain. But it’s not all smooth sailing. Some sectors remain more exposed than others, especially through macroeconomic shocks.

“Macro exposure is high for automotive, transportation (shipping and airlines) and energy,” Moody’s notes.

These industries are especially vulnerable as tariffs dent global growth and consumer spending, while straining supply chains.

The automotive sector is a case in point.

“Given the discretionary nature of vehicle purchases, demand tends to soften during periods of economic slowdown,” the report explains.

Moody’s has already cut its 2025 global light vehicle sales growth forecast to 1.3%, down from 2.0%.

Sectorial outlook

In Asia Pacific, 67% of rated automakers score high on macro exposure, although none rely heavily on US exports or raw material imports.

Chinese automakers are particularly insulated, with around 80% of their sales coming from the domestic market.

Japanese and Korean automakers are more exposed but are shielded by their production base in the United States supporting their strong credit profiles.

The transportation sector, especially shipping, also faces headwinds.

“US tariffs on imported goods could reduce freight volumes, hurting shipping companies with global operations,” Moody’s warns.

Still, most rated players in this sector have robust liquidity buffers to weather volatility. Energy companies are next in line, with coal miners feeling the heat.

“Elevated geopolitical risks drive volatility in commodity prices that will weigh on coal miners’ earnings,” the report states.

However, refiners in regulated markets and steel companies serving strong domestic demand remain relatively insulated.

Financial risk, meanwhile, is more closely tied to credit quality than industry.

While only 6% of Asia-Pacific companies show high financial risk, that figure jumps to 25% among high-yield (HY) issuers.

“Two-thirds of these companies are rated B3 and below and they have weak liquidity,” Moody’s says, highlighting their reliance on external funding and vulnerability to market stress.

This divide between investment grade (IG) and HY firms is stark. “Around 80% of the rated companies in Asia-Pacific are IG,” the report notes.

These firms benefit from “large, geographically diversified operations, stronger financial profiles and lower exposure to financial market risk.”

In contrast, most of the Asia-Pacific HY companies’ overall high exposure accrues from their high exposure to financial risk, which is typical for low-rated HY issuers.

Minimal default risk

Even so, defaults are expected to remain low.

“We projected the trailing 12-month HY corporate default rate in Asia Pacific to be 4.1% by the end of 2025 – unchanged from year-end 2024 and below the 10-year average of 5.7%,” Moody’s says.

The presence of government-linked firms and companies backed by large business groups with access to domestic capital markets helps support this resilience.

Geographically, the HY companies most at risk are spread across Greater China, South and South-East Asia, as well as Australia and New Zealand.

Still, the overall resilience of the Asia-Pacific portfolio is underpinned by the presence of government-related issuers and companies affiliated with large, financially strong business groups.

Notably, Moody’s points out that sector outlooks are turning gloomier.

“An increasingly difficult operating environment – marked by tariff uncertainty, geopolitical tensions and persistently high interest rates – has underpinned a shift in our industry sector outlooks (ISOs),” it states.

Between April and June, over half of all ISOs were revised downward, with eight negative and just two positive – a sharp pivot from the end of 2023.

That said, the fallout remains uneven.

“Risk exposures to macroeconomic conditions for Asia-Pacific companies operating in industries with negative ISOs remain uneven, shaped by region-specific dynamics and company-level idiosyncrasies.

“Essentially, while tariffs are certainly shaking up the global credit environment, Asia Pacific’s strong domestic markets, diversified operations and sound credit fundamentals are helping companies in the region weather the storm,” the report clarifies.