As US President Donald Trump’s tariff plan kicked in – before it was then suspended for 90 days – turmoil in world markets was particularly marked in South-East Asia, a region hit especially hard by the new levies.
The Indonesian rupiah fell to its lowest rate ever against the dollar, while other currencies hit lows not seen for years. Emissaries are being sent to Washington by Vietnam – faced with a 46 per cent tariff rate – Indonesia (32 per cent), Malaysia (24 per cent), and Thailand (36 per cent), while others, including Cambodia (49 per cent) and Laos (48 per cent), are doubtless making whatever case they can for leniency.
Myanmar, handed a tariff rate of 44 per cent, is hardly in any position to retaliate or even negotiate, while the Philippines (17 per cent) and Singapore (10 per cent) must be thankful to have gotten off relatively lightly.
Asian markets rallied after Mr Trump announced his pause. But if he goes through with his announced plan, regional economies that benefited from the “China Plus One” formula, where manufacturers moved to third countries to avoid US tariffs on Chinese goods, will be affected very badly – perhaps none more so than Vietnam.
The country makes half the world’s Nike shoes, and about 30 per cent of its total exports are to the US. Its leaders had offered to slash tariffs on US imports to zero, but that was batted away by Mr Trump’s trade adviser, Peter Navarro, who said: “That means nothing to us because it’s the non-tariff cheating that matters.”
His accusation was that Chinese goods were being rerouted through Vietnam, intellectual property was being stolen and, like others in the Trump administration, he also has a strong aversion to value-added taxes, which they view as tariffs. On Thursday, the Vietnamese government said that negotiations had begun for a “reciprocal” trade agreement, but given Mr Trump’s mercurial temperament, who knows what will come of that.
Malaysian Prime Minister Anwar Ibrahim has said that, as this year’s chair of the 10-member Association of South-East Asian Nations, he will be co-ordinating a response “to engage constructively” with the US and that the 680 million-strong bloc should “present a united regional front, maintain open and resilient supply chains and ensure that Asean’s collective voice is heard clearly and firmly on the international stage”.
Nevertheless, the move has still caused mayhem. There are understandable fears that businesses may decide to move to other countries and that foreign investment could be severely hit. When Chinese President Xi Jinping visits Cambodia, Malaysia and Vietnam, a trip that will start next week, he will be well-placed to position his country as a responsible and reliable partner, as opposed to a volatile and capricious America under Mr Trump, who has deliberately not made it clear how long his tariffs are supposed to last.
Are they permanent, or are they to force the kind of deal Mr Trump believes he excels at? “There can be permanent tariffs – and there can also be negotiations because there are things that we need beyond tariffs,” he told reporters recently. If you were an investor considering building a new factory in Vietnam or Cambodia, I don’t think you would find that reply reassuring.
Asean can and will look to other markets – this may give a necessary jolt to long-stalled talks on an Asean-EU free trade agreement. But the group as a whole is already Beijing’s largest trading partner, and China is now positioning itself as a defender of free trade against Mr Trump’s tariff onslaught.
At the end of last month, China, South Korea and Japan struck a deal to strengthen mutual free trade ties, and officials held a second trilateral on the sidelines of an Asean finance ministers’ meeting in Kuala Lumpur this week. Considering the sometimes-highly acrimonious territorial disputes the three countries have between them – not to mention the fact that Japan and South Korea are both treaty allies of the US – this increasing co-operation is quite remarkable.
But then the EU has also had a very prickly relationship with Beijing, with Brussels freezing ratification of an important agreement between the two in 2021. Yet, faced with Mr Trump’s trade war, European Commission President Ursula von der Leyen spoke to Chinese Premier Li Qiang to ask for his help and issued a statement stressing “the responsibility of Europe and China, as two of world’s largest markets, to support a strong reformed trading system, free, fair and founded on a level playing field”.
It has been felt for some years in South-East Asia that the US has talked a good game on engagement with the region, but Mr Trump sunk the centrepiece of Barack Obama’s “pivot to Asia” when he withdrew America from the Trans-Pacific Partnership as soon as he took office the first time, while in terms of supporting the big-ticket infrastructure projects many countries need, the Indo-Pacific Economic Framework for Prosperity launched by then-president Joe Biden in 2022 was frankly no match for China’s ambitious (and quite usefully capacious and imprecise) Belt and Road Initiative.
What remains is US commitment to a strong security role in the region. However, some will be asking how sure a security partner it can be when it may be willing to inflict so much economic pain on countries that are (mostly) supposed to be on friendly terms with Washington.
While some countries are closer to China, most wish for balance. Even if they don’t say so publicly, many leaders welcome America’s military presence. This is not out of fear of China, as such; more that any group of countries bordering a large major power is aware of the dominance the hegemon could assert, if unchecked.
No one quite knows what security guarantees mean under Mr Trump. Now they do know that he is happy to take a pick-axe to their growth plans if he thinks it will help his own country – the announced tariffs could knock up to 5 per cent off Vietnam’s gross domestic product, for instance.
Beijing has its own tariffs to deal with, of course, but expect Mr Xi to be all smiles on his imminent mini-tour of South-East Asia. If Mr Trump wanted to make the Chinese President look like the reliable partner in the Asia-Pacific room, he couldn’t have done a better job.
