A day before U.S. President Donald Trump’s harsh “reciprocal tariffs” are set to come into effect, Southeast Asia’s major economies continue to reel from the globe-shaking announcement, as their governments hastily cobble together a response.
Stock markets in Singapore, Malaysia, Thailand, and the Philippines tumbled when trading opened yesterday, after China announced harsh retaliatory tariffs on the United States, escalating a trade dispute that could evolve into full-blown economic warfare.
Over the past few days, the leaders of the region’s major economies have continued to clarify their approaches to the Trump administration’s tariff announcement, which has hit Southeast Asia particularly hard. Among the Southeast Asian economies, Cambodia was hit with the highest rate – 49 percent, among the highest in the world – followed by Laos (47 percent), Vietnam (46 percent), Thailand (36 percent), Indonesia (32 percent), and Malaysia (24 percent).
As I noted last week, most have been remarkably restrained in their response, a function of the importance that the U.S. plays as a market for the region’s exports.
As regional delegations converge on Washington for talks aimed at tariff relief, most of the region’s governments have outlined a two-pronged strategy, pairing short-term concessions to Trump, including the reduction of their own tariffs, and pledges to increase imports of certain U.S. goods, with a long-term pledge to reduce their reliance on the U.S. market. None so far say that they will retaliate against the U.S. tariffs by upping their own.
In Indonesia, the shock from Trump’s April 2 tariff announcement yesterday wiped 9.6 percent off the Indonesia Stock Exchange Composite index and sent the rupiah to a nadir of 16,898 rupiah per U.S. dollar, the currency’s weakest level on record.
President Prabowo Subianto has since announced that his government will send a high-level delegation to Washington to negotiate tariff relief. “We will say, we want a good relationship,” Prabowo said yesterday during a rice harvesting event in West Java, Reuters reported. “We want a fair relationship. We want an equal relationship.”
Thailand’s strategy to minimize the tariff announced by Trump will include pledges to import more goods and increase U.S. investments in the country, Bloomberg reported, although the country has not yet made any offer to cut tariffs. Finance Minister Pichai Chunhavajira will depart for the U.S. this week for talks with “the government sector, the private sector, and stakeholders,” Prime Minister Paetongtarn Shinawatra announced on Sunday.
“We will tell the U.S. government that Thailand is not only an exporter but also an ally and economic partner that the U.S. can rely on in the long term,” she said.
Supavud Saicheua, a member of the Thai government’s working group on tariffs, told the state-run MCOT television channel that Thailand would offer to import more American energy, aircraft, and agricultural products.
“We will pursue the middle path,” he said as per Bloomberg. “We won’t rush to the U.S., and we won’t stand still and retaliate like China. We will try to find out ways as to how to live with the new Trump administration.” Thailand’s Department of Foreign Trade has also promised to increase its surveillance of exports to the U.S. that are being falsely claimed as of Thai origin.
Vietnam was the first nation in the region to respond to the tariffs, a measure of the threat that the astronomical 46 percent rate poses to Vietnam’s export-led growth model. In a call with Trump on April 4, To Lam, the head of the Communist Party of Vietnam, requested that Trump impose a 45-day delay to the tariffs and offered to remove the country’s tariffs entirely as a starting point of negotiations. Trump later described the call as “very productive.”
On Sunday, Deputy Prime Minister Bui Thanh Son met U.S. Ambassador Marc Knapper in Hanoi, and again requested that Trump delay the enforcement of the tariffs while the two sides negotiate. Deputy Prime Minister Ho Duc Phoc, who is currently in the U.S., told companies on Friday that Vietnam was seeking a one to three-month delay. There have also been reports that Phoc is set to finalize a deal on the purchase of Boeing airplanes by a Vietnamese airline.
In Malaysia, Prime Minister Anwar Ibrahim, who is also the country’s finance minister, has described the Trump administration’s “unilateral decision” as a rejection of the World Trade Organization’s “principles of free, non-discriminatory, predictable, and open trade.” In a video address posted to his social media accounts on Sunday, Anwar said that his government would not introduce retaliatory tariffs and the country would “weather this challenge from a position of strength and preparedness,” Channel News Asia reported.
Anwar, the current chair of the Association of Southeast Asian Nations (ASEAN), has also pledged to bring the 10-member bloc together “to engage constructively” with the U.S. over the tariffs and “lead efforts to present a united regional front, maintain open and resilient supply chains, and ensure ASEAN’s collective voice is heard clearly and firmly on the international stage.” On April 5, Malaysia, Indonesia, Brunei, the Philippines, and Singapore held a teleconference to discuss the tariffs, and ASEAN’s economics ministers are scheduled to meet on Thursday in an attempt to coordinate a collective response.
As I noted on Friday, Cambodia’s response to the tariff announcement has been relatively lackadaisical, and surprisingly so, given the impact that Trump’s 49 percent tariff could have on its economically pivotal apparel and footwear exports to the U.S. In a letter to Trump on Friday, Cambodian Prime Minister Hun Manet offered “to negotiate with Your Honorable’s administration at the earliest convenient time” and proposed an “immediate reduction of 19 produce categories from our maximum 35% tariff bound rate to [a] 5% applied tariff rate.”
As my colleague David Hutt noted in his Cambodia Unfiltered newsletter, this is unlikely to be enough for the U.S., which may expect concessions on other issues, including on the China-funded Ream Naval Base, a long-standing Washington concern, or belated action to root out cyberscam operations that continue to operate from Cambodian soil.
Complicating the equation for Southeast Asian governments is the uncertainty about the ultimate purpose of the tariffs. Attempting to offer post hoc rationalizations for Trump’s assault on the global trading system, U.S. officials have proffered several mutually contradictory objectives: to raise revenue, promote U.S. reindustrialization, redress (or eliminate) trade deficits, or force partners to make significant concessions on economic and national security questions, in particular, those pertaining to U.S. strategic competition with China.
While many Southeast Asian nations have operated on the latter two assumptions, offering to increase purchases of U.S. goods and/or reduce their remaining trade barriers, comments from Trump and his inner circle have prompted doubts as to whether the tariffs are even up for negotiation. For instance, Trump’s trade advisor Peter Navarro said yesterday that Vietnam’s offer to reduce its tariffs on U.S. goods “means nothing to us,” given the “nontariff cheating” that had contributed to its $123.5 billion trade surplus with the U.S. Speaking on Fox News, Navarro accused Vietnam as acting as a “transshipment” point for Chinese goods, and described it as “essentially a colony of communist China,” a characterization that would no doubt raise eyebrows in Hanoi. There is also the possibility, aired by Abraham Newman in the Financial Times, that the tariff move is an act of “power, hierarchy, and dominance” with no obvious remedy.
Given the chaotic nature of the tariff announcement, and the contradictory rationalizations that have been offered by the Trump administration so far, it is very likely that each of these cases will be resolved in a similarly ad hoc manner, via bilateral negotiations, in the months to come. A full accounting of the damage that this does to Washington’s reputation as a reliable and predictable economic partner will probably take a lot longer.