Trump's fresh tariff threats rattle Asean, bring focus on transshipment practices

President Donald Trump’s latest salvo in his trade war campaign has left six Southeast Asian economies facing the prospect of steep new tariffs, injecting new volatility into a region already grappling with global economic uncertainty and geopolitical strain.

The president on Monday (July 7) announced that punitive “reciprocal” tariffs would come into effect starting August 1. Thailand and Cambodia face 36 per cent, Indonesia 32 per cent, Malaysia 25 per cent, while Laos and Myanmar are looking at 40 per cent levies. Vietnam, the only Asean country to have reached a tentative deal with Washington, will see its April-announced rate reduced to 20 per cent. However, goods routed through Vietnam from China are still set to incur 40 per cent duties.

Singapore, Brunei and the Philippines are still awaiting clarity on their tariff rates.

The measures, part of Trump’s campaign to address what he considers unfair trade imbalances, particularly with China, are also aimed at stopping a growing practice: transshipment. Many Chinese firms have begun rerouting exports through Southeast Asian countries to evade US tariffs, and Washington is now widening its net.

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“The risks of being tagged with extremely high ’transshipment’ tariffs is high,” Nikkei Business quoted Deborah Elms, head of trade policy at the Hinrich Foundation, as saying. “I suspect firms will be pivoting away from an overreliance on the US.”

Rising costs, shrinking options

The new tariffs are likely to have far-reaching consequences. Many of the affected Asean nations have significant exposure to US markets, particularly through labour-intensive industries such as garments, leather goods and electronics. Analysts warn that Trump’s tariffs could raise costs for American consumers without bringing manufacturing back home.

“It is neither practical nor reasonable to expect reshoring of labor-intensive activities like garment manufacturing to the United States,” said Jayant Menon, visiting fellow at the ISEAS-Yusof Ishak Institute in Singapore. “All that these tariffs will do is raise the price of garments, leather goods and other similar imports from developing Asia, to the detriment of US consumers,” Menon told Nikkei.

In Indonesia, the economic stakes are high. Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies, warned of a potential $10.1 billion reduction in GDP. “There is no progress on the negotiation side,” he said.

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“The impact that we have tried to calculate if the US imposes a tariff of 32 per cent on Indonesia is a decrease in economic output of up to 164 trillion rupiah ($10.1 billion, or 12 per cent of the country’s nominal gross domestic product in 2024). This will have a significant impact on the Indonesian economy because some labour-intensive sectors are still dependent on the US.”

Asean countries have been trying to mollify the US administration with pledges to purchase more American goods. Yet, few have made visible headway.

“The Indonesian negotiating team is still in Washington, D.C., and as such, we need to make space for the ongoing diplomatic process,” said Shinta W. Kamdani, Chairperson of the Indonesian Employers Association. “The August 1 tariff implementation deadline shows that the path of diplomacy remains open and the opportunity to reach a constructive agreement is still available.

“We are pushing for a mutually beneficial scenario through increased imports of strategic commodities from the US, such as cotton, corn, dairy products, soybeans and crude oil.”

Malaysia, facing a 25 per cent rate, struck a similar tone. “These efforts are still ongoing and reflect Malaysia’s willingness to reach a fair and sustainable outcome for both parties,” a statement from Malaysian government officials said. “While we acknowledge the concerns raised by the US regarding trade imbalances and market access, we believe that constructive engagement and dialogue remain the best path forward.”

Winners, losers and what comes next

Vietnam appears to have negotiated some breathing room, receiving the only major reduction in its tariff rate. Yet, uncertainty lingers.

“It’s nonetheless important to note that details are not firmed up for Vietnam, even as the headline tariff rates seem reasonably favorable at face value,” said Michael Wan, an economist at financial services giant MUFG. “Exporters across Vietnam and Asia more broadly were already frontloading their exports to the US, even before the announcement, and so we do expect some slowdown in export growth.”

Thailand’s outlook is particularly precarious. At 36 per cent, its tariff rate places it at a disadvantage compared to regional peers like Malaysia and Vietnam.

“It would also affect new investment,” said Kobsak Pootrakool, director and senior executive vice president of Bangkok Bank. “No one would come in and build a factory to produce products that could not be sold to a big market like the US because of high import tariffs.”

Some observers view Trump’s announcement as another round of high-stakes brinkmanship.

“The silver lining is that these tariffs are only going to be effective Aug. 1, implying that there are still three weeks for negotiations,” analysts at DBS Group Holdings in Singapore wrote in a note. “Taken together, overly buoyant sentiment has been pared down, but the shock factor is nowhere near as close to what was seen on Liberation Day,” they added, referring to April 2, when Trump first laid out the reciprocal tariff rates.