US President-elect Donald Trump has vowed to slap tariffs of up to 60 per cent on Chinese imports and at least 10 per cent on goods from all other countries. - Reuters
SINGAPORE: While United States president-elect Donald Trump has threatened to impose blanket tariffs on imports, the greater danger for South-east Asian countries is the risk of being flooded by cheap Chinese goods which have been shut out of the American market, say analysts.
During the election campaign, Trump, who just won a second term as US president, vowed to slap tariffs of up to 60 per cent on Chinese imports and at least 10 per cent on goods from all other countries.
This, in addition to pulling the US out of the Indo-Pacific Economic Framework For Prosperity to enhance economic cooperation in the region and raising concerns over the extent of US military commitments to foreign allies in Asia.
While South-East Asia could benefit from increased US-China trade tensions – which may translate into a bigger market share for its exports – the region could also feel some pain from US protectionist measures, experts say. In particular, countries like Vietnam and Thailand with sizeable trade surpluses vis-a-vis the US.
Priyanka Kishore, founder and principal economist of Asia Decoded consultancy said Trump’s plans “do not bode well for South-East Asia overall”.
“Trump 2.0 will likely adopt a more aggressive stance towards China, with an escalation in tariffs and forceful de-risking rhetoric. This would result in a slowdown in external demand and heightened economic uncertainty amongst the Asean economies,” she told The Straits Times.
“His periodic threats to reduce US military support in the region also do not help, especially since the geopolitical situation in Asia has worsened since his last term, with rising conflicts in the South China Sea.”
Among the major economies in Asean, Vietnam faces the biggest risk of higher tariffs under a second Trump presidency, she said.
Vietnam is a major exporter to the US and had a US$90 billion (US$90 billion) trade surplus with Washington as of September, the fourth largest after China, the European Union and Mexico. The South-East Asian industrial hub has benefited from higher tariffs on U.S. imports of Chinese goods, which Trump started in his first presidency.
“The tariff imposition risks are most pronounced for Vietnam, which has become the third-largest contributor to the US trade deficit. Its rising imports from China are also adding to the US’s anxieties, raising concerns that Vietnam could be a backdoor for Chinese goods into US markets under the heavy tariff regime,” Kishore said.
When Trump started a trade war with Beijing in 2018 during his first presidency, that prompted some Chinese companies to set up shop in the region, leading to US concerns over rerouted trades from China to America via the South-East Asian hubs.
Meanwhile, “Thailand too stands out with its large trade surplus with the US and close ties with China”, she said.
“Rising Chinese foreign direct investment into Thailand, especially in the electric vehicle industry, is likely to make the Trump administration cautious in trading with Thailand.”
Thailand recorded a trade surplus of US$41.9 billion with the US in 2022.
Burin Adulwattana, chief economist at Thailand’s Kasikorn Research Centre, said: “The result of the Trump trade war 1.0 was there has been some relocation of Chinese companies into Thailand. That will be one key question, on whether the new US administration will go after the Chinese supply chain located in South-East Asia.
“It might not just be Thailand that could be impacted, it might be other satellite spots that have benefited from Chinese supply chain relocation,” he told ST.
Still, there are some reasons for the region to be optimistic, analysts say.
Raised tariffs on US imports may result in a wider trade network for Indonesia, given that its new president Prabowo Subianto has set an ambitious target of raising annual economic growth from an average 5 per cent over the past five years to 8 per cent in his first term, said Dedi Dinarto, lead Indonesia analyst at strategic advisory firm Global Counsel.
“For Prabowo’s administration, this might be a clear sign that Indonesia needs to focus on self-reliance or branch out to new trade partnerships to minimise any fallout,” he added.
Indonesia has already shown how it is keen to diversify its partnerships, having announced in October that it was a partner nation of BRICS, the nine-member bloc of emerging economies often viewed as a strategic counterbalance to Western influence.
Over in Malaysia, any increase in tariffs imposed by US regulators on China-made rubber gloves is expected to give Malaysia a competitive edge,” said Socio-Economic Research Centre executive director Lee Heng Guie.
During the previous Trump administration, US tariff hikes on Chinese imports helped Malaysian exports to the US grow by an average of 7.7 per cent per year between 2018 and 2022, said Lee.
Malaysia, which is the world’s largest producer of rubber gloves, has 44 per cent of the US market share currently.
Given how targeted the US was with its imposition of tariffs under the first Trump presidency, Trinh Nguyen, a Hong Kong-based senior economist with Natixis consultancy, believes Southeast Asian countries will likely be spared the higher tariffs.
If Trump follows through on his tariff threats, the greater risk Southeast Asian economies face is being flooded by Chinese goods, which are significantly cheaper than its competitors due to Chinese state subsidies and economies of scale.
Countries looking to develop their economies would need to be very strategic if they want to compete against Chinese goods being sold below cost, said Trinh.
“The real danger here is for these countries – if they have an ambition to industrialise – they are going to face a wall of Chinese goods that have very limited places to go,” she said.
“China is not going to stop producing these goods. It will continue its industrial policies because it fundamentally believes that the financialisation of the economy is not the way to develop, that it will have to be able to develop real goods. So it will continue to subsidise production.”
Such dynamics could spawn greater trade conflict in the region.
Kishore warned: “While investigations against Chinese dumping are underway in some Asean economies, substantive actions have been limited so far. Such frictions are likely to increase, as Chinese exports to the Asean rise amid exorbitant US tariffs.
“However, a full-blown trade war is unlikely, as Asean leaders recognise the importance of regional integration in an increasingly fragmented global environment.” - The Straits Times/ANN
*** Additional reporting by Hariz Baharudin and Zunaira Saieed
