By Gregor Stuart Hunter and and Saumya Vaishampayan

HONG KONG--It isn't just Mexico that should worry as the Trump administration mulls an overhaul of its import taxes.

The White House has tentatively endorsed a proposal from House Republicans to tax imports of goods into the U.S. at 20%, while exempting exports, an idea known as a "border-adjustment tax".

So far, Mexico has been seen as the key potential loser, amid other tensions between the country and the U.S.. But if implemented, the new levy could also have a big negative impact on Asian nations, which export billions of dollars worth of products from electronics to garments to the U.S. each year.

If the U.S. imposes a 20% import tax, it could reduce annual Asian merchandise exports by 3%-4%, reducing the region's growth in gross domestic product by around 0.5 percentage point, analysts at Credit Suisse estimate.

Credit Suisse reckons Vietnam, Taiwan, South Korea and Malaysia will prove the region's most vulnerable, saying they could face a potential 0.9 percentage point hit to GDP growth. That is because their exports to the U.S. are weighted toward durable goods, for which consumers tend to be more sensitive to price changes.

For sure, the impact of any rise in the price of imports to the U.S. could be offset by a rise in the dollar's value.

That might help U.S. consumers, who would still be able to afford suddenly more-expensive imported goods. A dollar rise might in time nullify one of the intended effects of the policy, which is to bring more jobs and manufacturing back to the U.S.

But if the dollar rallies sharply in the near term, such a move would still "likely be very disruptive for Asian financial markets and currencies," Credit Suisse argues. A stronger greenback would make it more expensive for emerging-market countries to repay their piles of dollar-denominated debt.

For example, a 15% appreciation in the U.S. dollar would add 20.6 percentage points to China's combined government and corporate debt-to-GDP ratio, which is already over 200%, according to analysis by Manulife Asset Management, a fund manager that oversees some $343 billion in assets. That would rise to 34.4 percentage points in the event of a 25% rally in the greenback.

South Korea would see the next-biggest rise in combined debt-to-GDP, while Turkey would see the biggest rise in government debt-to-GDP, based on Manulife's figures.

To be sure, it is unclear what form of tax changes will pass, whether specific countries can be targeted, or whether the plan will escape legal challenge at the World Trade Organization.

But the border-adjustment taxis likely to penalize the U.S. consumer in the short term and risks kicking off an emerging-market debt crisis that would hamper any chance of a sustained global recovery, said Megan Greene, Manulife's chief economist.

"All at a time when central banks have used up most of the dry powder in their arsenals," she said in the report. "As an economist, it is hard to think of a scarier scenario."

Write to Gregor Stuart Hunter at gregor.hunter@wsj.com and Saumya Vaishampayan at saumya.vaishampayan@wsj.com

(END) Dow Jones Newswires

January 27, 2017 04:37 ET (09:37 GMT)

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