Three weeks ago, JP Morgan published an analysis titled “Can Emerging Markets Survive Trade War II?” The short answer they give is yes—under certain macro conditions. A weaker dollar, stable commodity prices, and mild tariff escalation could keep the current rally alive. The longer version of the answer, however, reveals something else: a worldview shaped by inertial thinking.
The report focuses heavily on currency trends, dollar liquidity, and the direction of global trade volumes. This makes sense for a house like JP Morgan. But it also exposes the blind spots of an approach that privileges cyclical indicators over structural fractures. What happens when trade wars are not just about trade? What if the problem isn’t a strong dollar, but a mispriced world?
This time is different, and not in a good way
During Trade War 1.0, emerging markets (EM) played the role of agile substitute. As supply chains rerouted around China, countries like Vietnam and Mexico gained new manufacturing mandates. The assumption then was that trade would find new channels. That assumption no longer holds.
This time, the U.S. is casting a wider net. Tariffs are being applied more broadly, across categories and geographies. More importantly, the underlying narrative has changed. What began as a China-focused adjustment is now an open attempt to redesign the entire architecture of trade. And unlike last time, China is no longer absorbing the shock. It is exporting it.
China’s surplus is everyone else’s problem
China’s export machine has found new gears. With domestic consumption weak and property markets deflating, Beijing is leaning hard on manufacturing as its primary growth engine. In 2024 alone, China’s trade surplus ballooned to nearly $1 trillion. Its exports now account for almost half of quarterly GDP growth.
Emerging markets are feeling the squeeze. Cheap Chinese goods, from electric vehicles to textiles, are undercutting local industries. The surge isn’t limited to inputs—it’s hitting final goods markets, which means fewer jobs and shuttered factories. This is not an abstract risk; it is happening now. Mexico has already imposed 35% tariffs on Chinese textiles. Thailand and Malaysia are taxing e-commerce imports. Even Russia is slowing Chinese car imports to protect its domestic sector.
Meanwhile, exports from emerging markets to China are falling, deepening trade deficits and magnifying fiscal pressure. Trade diversion is becoming trade displacement.
The JP Morgan view: Competent, but incomplete
The JP Morgan model treats emerging markets like a function of three inputs: trade, commodities, and the dollar. It assumes correlations will hold. But correlation is not causation, and structural change breaks old models.
The report highlights India as a potential bright spot. Fair enough. With low export dependence and a strong domestic demand cycle, India is relatively insulated. But even there, the thesis is largely valuation-based. What’s missing is political economy: who controls value chains, who sets norms, who defines what counts as resilience.
The report notes, correctly, that some of the manufacturing migration away from China may be overstated. Transshipment and Chinese content embedded in ASEAN exports mean that the trade realignment is often cosmetic. A laptop assembled in Vietnam with Chinese components does not represent true decoupling.
And yet, the investment view still suggests that if conditions revert (weaker dollar, softer tariffs), then EMs are back on track. That is a risky bet on inertia.
A different lens for strategy
Instead of asking whether emerging markets can “survive,” we should be asking: which emerging markets are rewriting the rules of engagement? Who is building capacity rather than just absorbing capital?
This requires a more granular view. For instance, Indonesia is developing mineral refining capacity to avoid exporting raw nickel. Brazil is diversifying trading partners beyond China and the U.S. Vietnam is investing in domestic value-added production to reduce reliance on assembly-based FDI. These moves matter more than whether copper prices tick up or down.
Investors, too, need a new map. Barbell strategies based on macro assumptions won’t be enough. The binary view of risk-on/risk-off must give way to a selective, ground-up approach.
That means looking past GDP charts and into regulatory reform, industrial policy, and supply chain integration. It also means measuring domestic value-added, not just export volumes. If 80% of a country’s tech exports consist of imported parts, that trade surplus may be more of a mirage than a margin.
The real question is political, not financial
The broader point is this: emerging markets are not passive recipients of capital flows. They are contested spaces in a world that is actively being redesigned. The fight is not just over tariffs or terms of trade. It is about who builds, who owns, and who captures.
In this context, the next decade of EM investing won’t be about chasing beta. It will be about aligning with countries that are becoming more than what they were told to be. The periphery has choices—but only if it stops relying on the center to define the rules.
Three weeks on, the JP Morgan report remains a competent snapshot. But the real landscape is already shifting beneath its feet. And trouble, as always, finds the periphery first.