Trump’s return sparks questions on tariffs disrupting Asean growth and investment flows
Within Asean, Vietnam is expected to be the most sensitive to higher tariffs from the US
Published Wed, Nov 6, 2024 · 07:10 PM — Updated Sat, Nov 9, 2024 · 09:25 PM
WITH former US president Donald Trump set to return to the White House, renewed tensions with China could pose challenges for Asean economies, despite recent gains from the “China plus one” strategy that has driven companies to diversify supply chains beyond China.
Trump’s proposed 10 to 20 per cent tariff on all imports, along with a possible 60 per cent or higher tariff on Chinese imports could reshape the dynamics of trade flows and investments – potentially accelerating the shift towards Asean, said experts.
Assuming a 60 per cent tariff on China’s exports to the United States, China’s gross domestic product growth is expected to fall by one percentage point. In this scenario, Asean-6 GDP growth is projected to be relatively unaffected, with the economies continuing to benefit from ongoing supply chain diversification, noted Lavanya Venkateswaran, senior Asean economist at OCBC.
The Asean-6 comprises Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
In this scenario, Venkateswaran said: “If further tariffs are imposed on China’s exports to the US alone, we expect the benefits from the China-plus-one strategy to continue as we have seen over the past few years.”
However, the shift towards Asean has not been driven solely by tariffs.
Goh Puay Guan, an associate professor at the National University of Singapore (NUS) Business School’s department of analytics and operations, noted that besides geopolitical considerations, the China-plus-one strategy has been also driven by macroeconomic factors, such as Asean’s expanding middle class, a large labour pool, and rising costs in China.
These trends have been under way since the Covid-19 pandemic, with Chinese companies investing heavily in the region to enter new markets and hedge risks related to US market access, he added.
However, if the US imposes a 60 per cent tariff on Chinese exports alongside 10 to 20 per cent tariffs on all trading partners, including Asean economies, the region’s growth would likely face a greater negative impact.
In these instances, Asean-6 GDP growth is projected to decline by 0.7 and 1.3 percentage points, respectively, in 2025, relative to OCBC’s baseline projections.
Within the Asean-6 economies, Vietnam is expected to be the most sensitive to higher tariffs from the US. Venkateswaran pointed out that Vietnam’s export share to the US is close to 30 per cent, making it the most exposed economy in Asean. This is followed by the economies of Thailand, Malaysia and Singapore.
Maybank’s regional co-head of macro research Chua Hak Bin said that blanket tariffs could increase the incentive to onshore, thus dampening foreign direct investment (FDI) to Asean.
“Trump has pledged to crack down on tariff evasion and trade diversion, which could result in collateral damage on Asean, and discourage Chinese manufacturing investment in the region,” he added.
NUS Business School’s Goh, however, cautioned that depending on whether Trump implements tariffs to the extent mentioned during the campaign, this could cause volatility in the short term as companies rush to adjust and accelerate supply chain changes.
“While the long-term trends for supply chain diversification are clear, supply chains take time to adapt and do not change overnight. Costs will likely go up when companies must adapt their sourcing, manufacturing and shipping quickly,” he said.
Asean economies could therefore face pressure to enhance its infrastructure and workforce readiness to meet increased demand.
