President Donald Trump's unilateral imposition of tariffs across the United States' economic chessboard poses a critical test for Asean. As the regional organisation of Southeast Asia, Asean has weathered many geopolitical and geoeconomic storms in its 58-year existence, but no adversity like the Trump tariffs. Unless Asean reorganises and regroups, the ten-member body risks further divisions and increasing irrelevance.
To be sure, Asean over the past 12 years has already been beset with knotty divisions over the US-China conflict, Myanmar's coup and civil war since February 2021, and Russia's invasion of Ukraine in February 2022. Asean member states have reacted and responded to these challenges divergently. On 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 and supportive of China, with others positioning 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 been more passive. On what's happening to Ukraine, Laos and Vietnam have abstained from major United Nations resolutions to condemn Russia. Yet these Asean differences generally lead member states to take divergent positions and approaches.
What the Trump tariffs will likely end up doing is to force Asean economies to compete aggressively with each other more than ever. Already, Asean economies are export-dependent with similar structures of production and factor endowments. For instance, Malaysia, Thailand and Vietnam make electronics and electrical products, machinery and machine components, and integrated circuits and computers for sale abroad. Both Thailand and Vietnam export rice, while Malaysia and Thailand sell rubber and petrochemicals in third markets.
As intra-Asean trade has remained fairly constant at around 22%, the major Southeast Asia economies have had to rely on world markets for their livelihoods and well-being. Unsurprisingly, exports in 2023 as a percentage of GDP accounted for 65% for Thailand, 68% for Malaysia, 87% for Vietnam, and 174% for highly trade-dependent Singapore. For Indonesia and the Philippines, the equivalent figures are 21% and 26% respectively, indicating that these two economies can count more on consumption, investment and government spending as a share of economic growth.
The Trump tariffs on Southeast Asia are generating competitive effects on these major Asean economies because they are differentiated, discriminatory, and trade-diversionary. The lack of uniform US tariffs means that Asean exports into the US market, the largest export destination for most Asean economies, will have to compete to get in, contingent on the tariff rates they can negotiate with the Trump administration. The 10% baseline tariff that all US trade partners have to pay will also undermine Asean and favour US domestic producers, who may not be as efficient and cost-effective.
Having just completed his first 100 days since taking office, President Trump's 90-day pause on his tariffs war from April 9 is designed 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 out of the Asean pack to offer concessions by offering to reduce tariffs for US goods to zero. Instead of praise and leniency, Vietnam did not get much in return as the Trump team treated the move as inadequate and insisted that non-tariff barriers were the real impediments, and that Vietnam's US$123 billion trade surplus last year was the real problem. As Vietnam came up empty-handed after reaching out with a zero-tariff overture, other Asean members and the wider trade arena took notice. The lesson from Vietnam's first-mover disadvantage is to bide time, prepare talks and packages of trade-offs, but stay back until trends and prospects are in train.
Apart from Vietnam's 46% tariff, Asean economies were also hit hard. Cambodia was levied with 49%, Laos, 48%, Myanmar 44%, Thailand 36%, and Indonesia 32%. Brunei and Malaysia came in with 24%, while the Philippines was meted out 17% and Singapore 10%. In this mix, the larger Asean economies, both by market size and GDP value, with lower US tariff rates, stand a better chance of muddling through and regaining ground. However, doing so may come at the expense of neighbouring economies.
Singapore may be a market of six million, but its GDP stood at US$501 billion in 2023, compared to Thailand with a 70-million population and a GDP of US$515 billion in the same year. Singapore's room for adjustment is comparatively ample. Vietnam's comparable GDP is US$429 billion, with a 100-million market and high export dependence. Its high tariff rate of 46% will need to come down significantly for it to reach its 8% growth target this year. With a US$399 billion GDP and a lower US tariff in view of its similar export structure to Thailand and Vietnam, Malaysia may come out of this geoeconomic maelstrom ahead of its peers.
Thailand has the most to be worried about. Its national income and growth prospects appear stagnant. Indeed, in the next five years, Vietnam, Singapore, and maybe even the Philippines may well overtake Thailand in GDP size if their economies expand robustly while this country remains in the doldrums with 1-3% growth. Unless Thailand can negotiate the Trump tariffs down sharply, it risks losing out to Malaysia and also Vietnam if the latter succeeds in its negotiations.
The Trump tariffs are particularly aimed at preventing Chinese transshipments and re-exports through Southeast Asia. Without US market access, China is now dumping products into Asean markets and exacerbating their glut, as the biggest buyer in the world pulls back and myriad sellers have fewer places to go. It is dire straits for Asean in the foreseeable future. The only effective way for Asean to find outlets and ways ahead in the longer term is to focus inwards and reboot its "Asean economic community" and intra-regional trade and investment. If China is smart and intent on taking over the global leadership mantle that the US is blatantly abandoning, Beijing should find ways not to dump goods but buy them from Asean via a state-directed boost in Chinese domestic consumption.