Trump tariffs challenge Asean’s unity and economic stability

As Trump’s tariff policies threaten Asean solidarity, the bloc should focus on regional trade to maintain stability and prevent division amid divergent responses

When US President Donald Trump’s tariff chaos eventually calms, its long-lasting consequences will significantly affect the area just south of China and east of India – Southeast Asia – and its organisational bloc, the Association of Southeast Asian Nations (Asean).

Trump’s focus on protectionism is likely to replace uniform tariffs with varying import taxes for different countries. This shift could create divisive and harmful effects for Southeast Asia and Asean, which are interchangeable but distinct, fostering competition rather than enhancing cooperation among their economies.

The time has come to think of this central Indo-Pacific neighbourhood more as a Southeast Asian region and less as an Asean organisation of production networks and global supply chains.

To be sure, Trump’s unilateral tariffs across Washington’s geoeconomic chessboard pose a critical test for Asean. The Southeast Asian grouping has weathered many geopolitical and geoeconomic storms in its 58-year existence, but few are as serious as the Trump tariffs. Asean risks facing further division, reduction, and irrelevance unless it can reorganise and unite.

Over the last 13 years, Asean has already faced complicated divisions due to the US-China rivalry, Beijing’s aggressive actions in the South China Sea, Myanmar’s 2021 coup and subsequent civil war, along with Russia’s invasion of Ukraine in February 2022. The responses of Asean member states to these challenges have varied.

Regarding the US-China confrontation, for example, the Philippines relies more on Washington’s support to stand up to Beijing on overlapping territorial claims in the South China Sea, whereas Laos is more economically dependent on and supportive of China, with others positioned between the two superpowers in pragmatic ways.

On Myanmar’s internal conflict, Malaysia, Indonesia, the Philippines and Singapore have called for the restoration of the democratic process through an Asean agreement known as the “Five-Point Consensus”, while other Asean members have taken a more passive stance regarding the situation.

With respect to Ukraine, Laos and Vietnam have abstained from major United Nations resolutions to condemn Russia, while Singapore has imposed sanctions on Moscow.

The Trump tariffs are likely to intensify competition among Asean economies, which are already heavily export-oriented with similar production structures. For example, Malaysia, Thailand and Vietnam export electronics and machinery to the US, while Thailand and Vietnam export rice, and Malaysia and Thailand supply rubber and petrochemicals to other markets.

As intra-Asean trade has remained fairly constant at about 22 per cent, the major Southeast Asian economies have relied on world markets for their growth and development. Unsurprisingly, exports in 2023 as a percentage of GDP accounted for 65 per cent for Thailand, 68 per cent for Malaysia, 87 per cent for Vietnam, and an astonishing 174 per cent in the highly trade-reliant Singapore. In contrast, for Indonesia and the Philippines, those figures stand at 21 per cent and 26 per cent, respectively, indicating that these two economies depend more on consumption, investment and government expenditure for economic growth.

The Trump tariffs on Southeast Asia are creating competition among Asean economies because the tariffs differ. Without uniform tariffs, Asean exports to the US – the largest market for many of these economies – must compete based on the rates they can negotiate with Washington.

The success of Malaysia, Thailand and Vietnam as exporters to the US will largely depend on the tariff rates they negotiate, not their efficiency costs. The 10 per cent baseline tariff that all US trade partners have to pay will also undermine Asean and favour US domestic or “near-shore” producers, who may not be as efficient and cost-effective.

Approaching the six-month mark of his administration, Trump’s 90-day pause on his tariff war from April 9 was intended to let all economies (including the US) catch their breath and come to the negotiating table to make varying concessions. Asean, this year chaired by Malaysian Prime Minister Anwar Ibrahim, reacted with disbelief and indignation at the Trump tariffs but took a decidedly tame stance by vowing not to retaliate.

Vietnam was the first Asean nation to propose concessions by offering to reduce tariffs on US goods down to zero. Instead of praise and leniency, Vietnam did not receive much in return immediately as the Trump team viewed the move as inadequate and insisted that non-tariff barriers are the real impediments, such as the transshipments of Chinese goods, and Vietnam’s US$123 billion trade surplus last year. Although Vietnam initially felt disappointed after its zero-tariff proposal, it ultimately succeeded in opening the door to further negotiations.
The other Asean economies, such as Thailand, perceived Vietnam’s first-mover disadvantage as a lesson to bide time until trends and prospects are clearer. The clear uncertainty over whether to get ahead in the negotiations queue for a better deal is attributable to the Trump team’s unpredictable methods and criteria. Negotiating partners often do not know where the endpoints are to reach a “deal”.

Apart from Vietnam’s 46 per cent tariff, Asean economies were also hit hard. Cambodia was levied at 49 per cent, Laos 48 per cent, Myanmar 44 per cent, Thailand 36 per cent, and Indonesia 32 per cent. Brunei and Malaysia had 24 per cent tariffs, the Philippines 17 per cent, and Singapore 10 per cent. Larger Asean economies with lower US tariffs may recover more easily, but at the expense of neighbouring economies.

Despite its population of 6 million, Singapore’s GDP reached US$501 billion in 2023, while Thailand’s GDP was US$515 billion with a population of 70 million. This suggests Singapore has more room for economic adjustments. Vietnam, with a comparable GDP of US$429 billion and a market of 100 million people, heavily relies on exports. To meet its 8 per cent growth target this year, it must significantly reduce its high Trump-imposed 46 per cent tariff rate. Malaysia, with a GDP of US$399 billion and lower tariffs, may emerge from the current geoeconomic turbulence ahead of Thailand and Vietnam, given its similar export structure.

Thailand has the most to be worried about. Its national income and growth prospects appear stagnant. Indeed, over the next five years, if Vietnam, Singapore, and possibly even the Philippines continue to grow robustly while Thailand remains at a rate of 1-2 per cent, they may surpass Thailand in GDP size. Unless Thailand can negotiate the Trump tariffs down sharply, it risks losing out to Malaysia and Vietnam if the latter succeeds in its negotiations.

The Trump tariffs are particularly aimed at preventing Chinese transshipments and re-exports through Southeast Asia, particularly Thailand and Vietnam. As access to the US market declines, China is flooding Southeast Asian markets with goods, exacerbating oversupply and leaving sellers with fewer options. This poses challenges for Asean in the near future.

The most effective way for Asean to find outlets and ways ahead in the longer term is to focus inward, reboot its “Asean economic community” and prioritise intraregional trade and investment, such as the Regional Comprehensive Economic Partnership. We may be witnessing the end of Asean as we once knew it, as the region transitions back into being more of a geographical area rather than a cohesive organisation.

Source: SCMP