Southeast Asia is already bracing for a wave of tariffs. Donald Trump’s return to the White House brings a significant shift in US trade policy, with his proposed sweeping tariffs threatening to trigger retaliation and raising the prospect of a global trade war.
For a region whose exports to the US surged to US$143 billion in the first half of 2024 – overtaking shipments to China – Southeast Asia will likely come under increased scrutiny.
At the heart of Trump’s agenda is rebalancing trade through robust tariff increases, which he views as both a powerful negotiating tool and a means to rejuvenate American manufacturing. On Tuesday (Nov 19), Trump announced China hawk Howard Lutnick as his pick for commerce secretary, tasking him with leading the administration’s trade and tariff strategy.
On the campaign trail, Trump said he would impose tariffs of up to 20 per cent on all imports and a staggering 60 per cent or more on Chinese goods – which would effectively shut many Chinese exports out of the US market.
Southeast Asian economies such as Vietnam, Thailand and Malaysia export more to the US than they import, creating significant trade surpluses. Tariffs would raise the cost of their exports making them less attractive to American buyers. To maintain access to the critical US market, they may need to increase imports of American goods and curtail exports.
ASEAN economies could face short-term disruptions, with economists projecting that Trump’s tariffs could cut regional growth by up to 0.5 percentage points in 2025.
CHINA’S OVERCAPACITY – ASEAN’S NEW PROBLEM?
But Chinese exports that are shut out of the US market need to go somewhere else. While this might be good news for consumers in the short term, Southeast Asian manufacturers are already struggling with Chinese industrial overcapacity.
Thailand, for example, has seen over 2,000 factory closures this year due to a flood of cheap Chinese steel and other goods. Indonesia’s textile sector has lost tens of thousands of jobs in just six months, and local manufacturers across the region are struggling to stay competitive.
If tariffs cut off access to American buyers, this challenge could deepen as subsidised Chinese imports flood Southeast Asia and other emerging markets.
ASEAN governments are already taking steps to curb the influx. Vietnam and Indonesia have imposed a range of anti-dumping tariffs on Chinese goods, and Thailand recently announced measures to monitor cheap imports.
But countries will also need to strengthen enforcement mechanisms, improve quality standards, and expand the use of anti-dumping and countervailing duty measures to ensure fair trade.
TRUSTED ALTERNATIVES, NOT JUST “SOUTHEAST ASIA-WASHING”
But it’s important to look beyond just Trump’s tariffs and see the trajectory of reducing US reliance on Chinese manufacturing and technology.
Before the election, the Biden administration had finalised its ban on US investment in sensitive Chinese tech that will take effect on Jan 2, 2025 – before Trump is even inaugurated. It was also considering a broad ban on software which would effectively prevent Chinese cars from being sold in the US market.
While Trump will likely exit Biden-era economic initiatives such as the Indo-Pacific Economic Framework – half of the 14 member states are ASEAN countries – the weak trade pillar has been on ice since November 2023.
A Trump administration will likely build on the Biden agenda of stricter controls on strategic exports and investments, while increasing monitoring of Chinese content in goods routed through third countries to the US. Unlike during Trump’s first term, when many firms sidestepped US tariffs by routing final assembly through Southeast Asia, stricter monitoring of Chinese content and ownership in products like solar panels makes this strategy increasingly difficult.
In his second term, more punitive tariffs could force companies to relocate entire industrial ecosystems. Southeast Asian countries are well-positioned to present themselves as stable and reliable alternatives in high-tech supply chains.
Thailand’s Commerce Minister Pichai Naripthaphan sees opportunity ahead, noting, “Trump’s win will be beneficial for Thailand because Republicans are pro-business, and the US-China trade war will continue and result in more investments.”
However, realising this opportunity won’t be straightforward. It requires moving beyond low-cost manufacturing to develop more sophisticated value-added capabilities. At the same time, the US may pressure ASEAN countries or take direct steps to limit Chinese content in strategic sectors.
A CRITICAL TEST FOR ASEAN
Southeast Asia faces a critical test in the coming years.
Unlike in 2017, China’s advancements in emerging industries like electric vehicles and clean energy technology following the first trade war present a new challenge for ASEAN. China’s cost advantages and dominance in these sectors makes the meaningful diversification of supply chains more difficult, forcing ASEAN to balance strategic concerns with industrial development priorities.
Balancing the pressures of Trump’s trade policies with relationships with both the US and China will require flexibility, foresight and cooperation.
To succeed, Southeast Asia must focus on strengthening regional economic integration, upgrading industrial capabilities, and effectively managing the challenges of import surges. A more unified ASEAN could enhance the bloc’s bargaining power.
Trump’s preference for a transactional approach and bilateral deals over multilateral frameworks could complicate things, even as the bloc continues to work together on economic initiatives. Some Southeast Asian leaders may see bilateral negotiations as an opportunity to achieve quicker results than multilateral policy dialogues.
Southeast Asian nations must approach the next four years with a clear strategy for engaging with the US and China, maintaining their competitiveness in global trade while managing the pressures of rising trade tensions and overcapacity.
Shay Wester is the Director of Asian Economic Affairs at the Asia Society Policy Institute. He previously led policy strategy for the US-ASEAN Business Council in Singapore and served as a legislative assistant in the US Senate.
To read the commentary as it was published on the CNA webpage, click here.