Southeast Asia Responds to Trump Tariffs

The latest round of tariffs enacted by the Trump administration has multiple significant implications for Southeast Asia—both positive and negative.

Firstly, the Trump tariffs on China, which could cause havoc among U.S. automakers who are highly dependent on Chinese parts and technology, might lead them to source critical parts from other Asian countries experienced in auto parts manufacturing. Thailand is the most obvious choice for U.S. car firms, as it has established itself as the “Detroit” of Asia. The area east of Bangkok has become a deeply intertwined network of parts factories, close to outbound ports, and capable of shipping large quantities of parts abroad.

In other areas, Trump’s commitment to tariffs and unwillingness to foster trade stability in Asia might lead Asian countries, as well as Australia, New Zealand, and many developing regions, to increasingly rely on Chinese goods and technology—well beyond auto manufacturing. The instability in the global trade environment and the fear among companies in many regions about the uncertainty of future U.S. trade policies are allowing China to present itself as a reliable and sophisticated trade partner. China is increasingly dominating the market in many regions for electric vehicles, smartphones, battery technology, and other similar areas, as well as older technology. Given the opportunity of its main competitor appearing unstable in handling bilateral and multilateral trade, China will surely push to boost its outbound trade to nearly everywhere in the world except the United States.

At the same time, many Southeast Asian and South Asian states have been panicking since the Trump administration’s announcement a day ago that it would apply “reciprocal trade and tariffs.” These would be against countries the White House believes have too high tariffs on U.S. imports, are running large trade surpluses with the United States, or are somehow taking advantage of the U.S. trade-wise, although how “taking advantage” will be proven remains very unclear.

Such reciprocal tariffs could potentially be a significant blow to exporters in targeted countries if they are highly reliant on exports to the United States (China, by contrast, has insulated itself and is no longer dependent on U.S. exports). Vietnam, for instance, has one of the largest trade surpluses in the world, and even though its officials are pleading their country’s case to the Pentagon—Vietnam is a crucial security partner—they could still be hit hard by reciprocal tariffs. The same possibility exists for India and Thailand, both of which export a great deal to the United States and have significant tariffs on a range of items. Even Japan, a much longer-standing ally and a far larger economy than India, Thailand, or Vietnam, faces the possibility of reciprocal tariffs.

These countries are important security partners, and Trump has built a warm relationship with Indian Prime Minister Narendra Modi and has vowed to sell India supersonic F-35 fighter jets. Trump’s China hawk advisors are highly supportive of bolstering the relationship with Japan. Therefore, these countries will also try to convince Trump’s tough-on-China advisors that it is unwise to seriously alienate such key partners and allies.