By Anita Inder Singh
The disruptiveness of Donald Trump’s tariff war, launched on April 2, has hit the emerging economies of Southeast Asia. Even his new decision to remove tariffs on computers, chips, and smartphones made in and exported from the region will not change that reality. That is why the most important effect of his economic warmongering could be to increase the clout of America’s arch-rival, China, in the region.
Southeast Asian countries, including members of the 10-member Association of Southeast Asian Nations (ASEAN), have already been hit by some of the most punitive tariffs — in Cambodia’s case, as high as 49%, and in Vietnam’s case by 46%. Indonesia reckons with 32% and Malaysia with 24%. Thailand, an old American ally, faces 36%, but Trump is treating Asian and European allies alike — as enemies of the US. Such high levies have threatened to cripple Southeast Asian economies, which have prospered by making everything from Nike sports shoes to clothes and computers for American consumers.
So, Southeast Asian countries are trying to appease Trump. Unlike China and Europe, they will not retaliate. And they hope to reduce or even remove their own tariffs on American imports.
Enter China. As China — the world’s second-largest economic power and the main trading partner of ASEAN, or indeed of most Asian countries — faces the big challenges created by Trump’s tariff onslaught, Beijing has lost no time practising “neighbourhood diplomacy”. President Xi Jinping is visiting Vietnam, Malaysia, and Cambodia between April 14 and 18. Xi aims to encourage greater economic cooperation with Southeast Asian countries and persuade them to grant more market access for Chinese companies. These states are already China’s associates in the Regional Economic Comprehensive Partnership and have benefitted from Beijing’s decision to lift 90% of tariffs on the goods it imports from them. Cambodia is impressed that China shares; it doesn’t demand.
China has thus staked a claim to being the responsible defender of the global trading system and rules-based order, in contrast to the US, which is understandably being perceived as the world’s economic oppressor.
Trump alleges that most foreign countries have pushed the US around for too long. Many have demanded security and an open American market while erecting obstacles to US goods entering their countries. That is why America, he says, has a huge trade deficit; its manufacturing is facing a crisis and Americans are losing jobs.
So, tariffs reflect Trump’s determination to improve the lives of his compatriots. His logic dictates the destruction of the current world economic order. More specifically, it dictates the rise of China. That is why he has given most countries a three-month break in facing American tariffs while imposing 145% tariffs on Chinese goods. But he has blinked first on US imports of tech goods, including those from China.
It is too early to predict how much Asia’s emerging economies will benefit by Trump’s removal of some tariffs. ASEAN countries’ stock markets have been among the year’s biggest losers from Trump’s trade war — Thailand’s and Vietnam’s have fallen by more than 18 % since Trump raised tariffs.
These nations hope to get some help from China as it retaliates against the US. Such hopes have prompted Xi to visit Vietnam, Malaysia, and Cambodia. These countries are already low-cost hubs for Chinese exports to the US. At the same time, they are recipients of Western investment and have developed individual manufacturing hubs and tried to maintain a political and economic balance between the US and China.
However, their economies are not strong enough to fight an America-versus-China trade war. China itself — the main trading partner of ASEAN countries — poses big challenges. Southeast Asian countries fear that China will flood their markets with cheap and shoddy goods as it seeks alternative markets to American protectionism. They also worry that unlike them, Beijing has the financial strength to support its industries through a protracted trade war.
Such a trade war would increase pressure on domestic manufacturing industries and also slow down the foreign investments that have led to the economic growth of Southeast Asian countries.
China dominates 70% of global supply chains, which will not easily be destroyed by Trump’s war. Vietnam and Indonesia follow China on the supply chain but are nowhere near catching up with it, let alone surpassing it. Chinese goods are shipped via Vietnam on their way to the US. That roused the latter’s anger, even before Trump’s re-election. Vietnam has a $123.5-billion trade surplus with the US — the third largest after China and Mexico. Hanoi has now pledged to import more from the US, hoping to avoid punitive measures.
Nevertheless, Chinese exports, diverted through Southeast Asian countries on their way to the US, could still pose problems. China’s retaliation against Trump’s bullying could complicate their negotiations with the US if they continue to help China to avoid tariffs. Their limited foreign exchange reserves will not last long. Unsurprisingly, economic ministers of ASEAN, meeting in Kuala Lumpur on April 10, ruled out retaliation against the US.
Trump’s 90-day pause has not eased their worries because his economic war has introduced uncertainty in the global trade system. They are small countries and Trump has leverage over them in matters of trade. “We don’t have that many cards,” says Thailand.
However, if China helps Southeast Asian countries to maintain their impressive economic performance, they will move even closer to it. That will spell an economic defeat for Trump’s America and success for its main politico-economic rival, China.
The author is Founding professor, Centre for Peace and Conflict Resolution, New Delhi.
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