Trump's tariffs are likely to stress banks in developing nations

For some emerging economies, there are signs that the second half of 2025 may be tougher than expected. The root of the problem is President Donald Trump's tariffs, which are likely to make lending riskier in those economies.

As a result, Fitch Ratings has downgraded its outlooks for the banking sectors in South Korea, Mexico, Thailand, Taiwan, and Vietnam.

Let’s say tariffs cause just a slight dip in U.S. consumption. For emerging economies that export to the U.S., there will be “a sizeable impact,” said John Diamond, director of Rice University’s Center for Tax and Budget Policy. He said that’s because the U.S. makes up such a big percentage of the market.

Think of Vietnam, for example. Fitch Ratings recently downgraded its banking sector from “improving” to “neutral”.

“The U.S. is pulling back. That's going to impact their growth rate and the amount of export-driven growth that they can drum up,” said Diamond.”That's also going to impact how able they are … to make payments on their debt.”

And if the debt to income ratio goes up?

“You're going to be able to borrow less money. And so that's going to affect how much they can invest. And so there's just this … cycle that they face,” he said.

Some of these emerging economies had invested a lot in recent years, expecting to sell to U.S. consumers. Especially in manufacturing, because they were subject to much lower tariffs than China, said Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics.

“These tariffs are going to make it much more difficult for developing and emerging economies to pitch themselves as destinations for foreign direct investment,” he said. They no longer have as much of a cost advantage when it comes to assembling and bringing goods to market.

Hendrix said all of this augurs poorly for these developing and middle income countries.