Last week, Oxford Economics documented the unexpected resilience of emerging market (EM) exports to tariffs, where reoriented trade limited the impact of U.S. tariffs on overall trade balances. The relatively benign changes in trade since President Donald Trump took office make industry experts more constructive on foreign exchange (FX).
Trade responses to tariffs aside, the degree of external imbalances in EMs is moderate, supporting the view that FX risks are contained, according to Oxford Economics’ latest findings.
Key takeaways:
· EM current account deficits remained generally small or inexistent in Q3 2025, in sharp contrast with the 2010s. In many cases, current accounts were stronger than at any point in the 2010s.
· More timely monthly data covering Q4 indicate that EM trade balances in H2 2025 were strong by historical standards. The current account includes more items than trade in goods, but the positive trade balance readings in late 2025 suggest that current accounts remain healthy.
· Drops in exports are far from generalized despite sharply higher U.S. tariffs. Exports have softened in a few countries but remain at historically healthy levels in most EMs. Exports to the United States made a small contribution to the change in total exports, with the exception of China.
· Oxford Economics forecasts strong current account balances in 2026 based on the favorable high-frequency data flow and a moderate impact of U.S. tariffs on exports. Expect most current account deficits to remain below 3% of GDP, a level that is traditionally seen as a warning sign.
· EM exports and trade balances have been relatively resilient despite substantial increases in U.S. tariffs. Overall external vulnerability remains moderate. Exports may suffer from tariffs with a lag, but marked increases in EM external vulnerability are unlikely.
“These developments support our upgrade of EM FX to neutral in last month's EM asset allocation. In cases like Colombia and the Philippines, we think that external imbalances will contribute to pressure on the exchange rate, but they are isolated cases with minimal impact on our views on the asset class,” according to Oxford Economics.
