Asian Firms Absorb US Tariff Shock Through Price Cuts While Export Volumes Hold Steady

A new study finds that after the 2025 US tariffs, Asian exporters largely kept shipments steady but cut prices by 3 to 5 percent, absorbing part of the cost through lower profit margins. Smaller firms were hit hardest, slashing prices more deeply to stay in the US market, even as competitive product categories increased their risk of exit.

When the United States imposed a sweeping 10 percent “reciprocal tariff” in April 2025, along with higher duties on steel, aluminum, automobiles and auto parts, many feared an immediate collapse in Asian exports. The policy marked one of the biggest shifts in US trade in years. But new research by the Asian Development Bank, UTokyo Economic Consulting and Waseda University shows the impact was more subtle, and in some ways more worrying, than a sudden drop in trade volumes. Instead of shipments drying up, the real adjustment happened behind the scenes, inside company balance sheets.

Trade Flows Stayed Stable, But Prices Fell

Using detailed customs shipment data from Cambodia, Indonesia, the Lao People’s Democratic Republic, the Philippines, Thailand and Vietnam, researchers tracked how firms changed their export prices and volumes after the tariffs took effect.

At first glance, trade looked surprisingly stable. Most exports to the US continued to come from the same firms selling the same products. There was no dramatic surge of “rush shipments” before the tariffs began, and no sharp collapse in export values in the months that followed.

But when researchers examined prices more closely, a clear pattern emerged. Exporters cut their prices by roughly 3 to 5 percent after the tariff hike. Since the tariff itself was 10 percent, this means exporters absorbed part of the cost instead of passing it all on to US buyers.

Quantities shipped to the US changed very little in the short run. Rather than reducing sales, firms kept goods flowing and accepted lower profit margins. In simple terms, they chose to earn less per unit rather than lose customers.

Some Products Felt the Pressure More

Not all exporters were affected in the same way. The study shows that the level of competition in each product category mattered a lot.

For products that are easy to replace, where US buyers can quickly switch to another supplier, exporters cut prices more aggressively. In these highly competitive categories, firms had little choice but to absorb a larger share of the tariff in order to stay attractive.

For more specialized or differentiated products, exporters were able to pass on more of the cost to US buyers. Because alternatives were limited, buyers were more willing to accept higher prices.

This means the tariff burden was uneven. The hardest hit were exporters selling products in markets where competition is intense and switching suppliers is easy.

Small Firms Took the Hardest Hit

The difference between small and large firms is one of the study’s most striking findings. Researchers grouped exporters based on their share of exports within each product category, using that as a proxy to identify micro, small and medium-sized enterprises.

Smaller firms reduced prices more deeply and more uniformly than larger firms. In some cases, their prices began falling even before the tariff officially started, likely due to uncertainty and fear of losing clients.

Large firms behaved differently. They made more targeted price adjustments, cutting prices mainly in highly competitive product categories while protecting margins elsewhere. With stronger financial buffers and better bargaining power, they were more flexible.

Small firms, by contrast, had fewer options. They appeared to respond with broad price cuts across their product lines, squeezing their own margins to remain in the US market.

Fewer Exits Than Expected

One might expect that smaller firms, facing tighter margins, would quickly exit the US market. Surprisingly, that did not happen, at least not in the short run.

The study found no major increase in firms abandoning the US market in the first three months after the tariff increase. In fact, smaller firms were sometimes even less likely than larger firms to exit.

This suggests that many small exporters chose to stay and absorb losses rather than leave and risk losing long-term relationships with US buyers. However, for products that are highly competitive and easily replaced, smaller firms were more likely to withdraw, showing that survival becomes harder when competition is fierce.

The Real Impact Lies Beneath the Surface

The 2025 US tariffs did not cause an immediate collapse in Asian exports. Instead, they quietly shifted the burden onto exporters’ profits. Goods kept moving, but margins shrank, especially for small firms and for products facing tough competition.

The findings highlight an important lesson: trade wars do not always show up in falling export numbers. Sometimes the damage is hidden in thinner margins and financial strain, particularly for small businesses that play a major role in developing Asia’s export economy.

If tariffs remain in place for longer, the pressure on these firms could grow. For now, the data suggest resilience, but also vulnerability just beneath the surface.