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Southeast Asia Navigates US-China Trade Tensions
The imposition of tariffs by former US President Donald Trump on Chinese goods created a significant opportunity for businesses in Southeast Asia. Vietnamese entrepreneur Hao Le’s firm is among a multitude of enterprises that have flourished by competing with Chinese exports, which have increasingly encountered limitations in Western nations.
Le’s company, SHDC Electronics, located in the burgeoning industrial center of Hai Duong, generates $2 million in monthly revenue from sales of phone and computer accessories to the United States. However, this income stream is under threat if Trump enacts his proposed 46% tariffs on Vietnamese products, a measure currently suspended until early July. Le describes such tariffs as potentially “catastrophic” for his business.
Domestic sales within Vietnam are not a viable alternative, he explains. “We cannot rival Chinese products. This predicament is not unique to us. Many Vietnamese companies are facing difficulties in their own domestic market.”
The tariffs initiated by Trump in 2016 led to a surplus of inexpensive Chinese imports in Southeast Asia, initially intended for the US market, thereby negatively impacting numerous local manufacturers. Conversely, they also unlocked new avenues for other businesses, frequently integrating them into global supply networks seeking to lessen their reliance on China.
However, a potential second Trump administration threatens to close these opportunities, viewing them as an unacceptable loophole. This poses a setback for rapidly expanding economies like Vietnam and Indonesia, which aspire to become prominent figures in sectors ranging from semiconductors to electric vehicles.
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These nations are also caught in a complex situation between the world’s two dominant economies: China, a powerful neighbor and their primary trading partner, and the US, a crucial export destination, which might seek to secure a deal at Beijing’s expense.
Consequently, Xi Jinping’s long-planned visits to Vietnam, Malaysia, and Cambodia this week have acquired renewed significance.
While these countries warmly welcomed Xi, Trump interpreted it as further proof of their alleged collusion to “exploit” the US.
US Pressure on Southeast Asia
The White House is expected to utilize forthcoming discussions with smaller nations to exert pressure on them to curtail their engagements with Beijing, according to reports.
However, this ambition may prove unrealistic given the substantial financial transactions between China and Southeast Asia.
In 2024, China’s export earnings reached a record $3.5 trillion, with 16% directed towards Southeast Asia, its largest market. In turn, Beijing has financed railway projects in Vietnam, dams in Cambodia, and ports in Malaysia as part of its “Belt and Road” initiative, aimed at bolstering international connections.
“We cannot choose, and we will never choose [between China and the US],” stated Malaysian Trade Minister Tengku Zafrul Aziz to the BBC on Tuesday, preceding Xi’s visit.
“If an issue contradicts our interests, we will safeguard ourselves.”
A Moment of Realization
Following Trump’s unveiling of extensive tariffs, Southeast Asian governments hastily initiated diplomatic efforts.
In what Trump described as a “highly productive conversation” with Vietnamese leader To Lam, Vietnam proposed eliminating tariffs on US goods entirely.
The US market is vital for Vietnam, a rising electronics manufacturing hub where multinational corporations like Samsung, Intel, and Foxconn, the Taiwanese company contracted to assemble iPhones, have established operations.
Meanwhile, Thai officials are traveling to Washington with a proposal encompassing increased US imports and investments. The US is Thailand’s largest export market, and they are seeking to avert the potential reinstatement of a 36% tariff by Trump.
“We will convey to the US government that Thailand is not merely an exporter but also a long-term ally and economic partner that the US can depend on,” declared Prime Minister Paetongtarn Shinawatra.
The Association of Southeast Asian Nations (ASEAN) has dismissed the prospect of retaliating against Trump’s tariffs, instead opting to emphasize their economic and political importance to the US.
Southeast Asia’s Balancing Act
“We recognize the US concerns,” Mr. Zafrul acknowledged to the BBC. “Therefore, we must demonstrate that ASEAN, particularly Malaysia, can serve as a bridge.”
Southeast Asia’s export-oriented economies have effectively played this intermediary role, benefiting from both Chinese and US trade and investment. However, Trump’s temporarily suspended tariffs could disrupt this equilibrium.
Consider Malaysia as an example. In recent years, semiconductor manufacturers from the US and elsewhere have invested in the country, as Washington restricts the sale of advanced technology to China. Last year, China imported $18 billion worth of semiconductors from Malaysia. These chips are incorporated into Chinese-made electronics, including iPhones, typically destined for the US.
Trump’s proposed 24% tariffs on Malaysia could potentially sever access to the multi-billion dollar US market. The implications extend further.
“If this trajectory persists, companies will need to re-evaluate their investment commitments,” Mr. Zafrul cautioned. “This will have repercussions not only for Malaysia’s economy but also for the global economy.”
Indonesia, facing potential 32% tariffs, possesses substantial nickel reserves and harbors ambitions within the global electric vehicle supply chain.
Cambodia, a close ally of China, confronts the steepest tariffs at 49%. As one of the region’s less affluent nations, it has prospered as a trans-shipment hub for Chinese enterprises seeking to circumvent US tariffs. Chinese firms currently own or manage 90% of garment factories, primarily exporting to the US.
Although Trump has paused these tariffs, “the damage is already done,” asserts Doris Liew, an economist at Malaysia’s Institute for Democracy and Economic Affairs.
“This serves as a wake-up call for the region to not only lessen reliance on the US but also to re-balance excessive dependence on any single trade and export partner.”
Shifting Trade Dynamics
Amid these uncertain times, Xi Jinping is endeavoring to convey a resolute message: collaborate and resist “bullying” from the US.
This is a complex undertaking as Southeast Asia also experiences trade frictions with Beijing.
In Indonesia, business owner Isma Savitri worries that Trump’s 145% tariffs on China will lead to intensified competition from Chinese rivals unable to export to the US.
“Small businesses like ours feel increasingly constrained,” remarks the owner of sleepwear brand Helopopy. “We are struggling to remain competitive against a surge of ultra-cheap Chinese products.”
Impact on Local Businesses
One of Helopopy’s popular pajama sets retails for $7.10 (119,000 Indonesian rupiah). Isma notes comparable Chinese designs are available for approximately half the price.
“Southeast Asia, with its geographical proximity, open trade policies, and rapidly expanding markets, has naturally become a dumping ground,” observes Nguyen Khac Giang, visiting fellow at the ISEAS Yusof-Ishak Institute in Singapore. “Many countries are politically hesitant to confront Beijing, adding another dimension of vulnerability.”
While consumers have welcomed competitively priced Chinese goods—ranging from apparel to footwear to smartphones—numerous local businesses have struggled to match these low prices.
Over the past two years, more than 100 factories in Thailand have closed monthly, according to estimates from a Thai think tank. During the same period in Indonesia, approximately 250,000 textile workers were laid off following the closure of around 60 garment manufacturers, according to local trade associations—including Sritex, once the region’s largest textile producer.
“We constantly hear news reports about imported products flooding the domestic market, disrupting our own market,” explains Mujiati, a worker laid off from Sritex in February after 30 years of employment.
“Perhaps it simply wasn’t our fortune,” reflects the 50-year-old, still seeking employment. “Who can we turn to for redress? There is no one.”
Protectionist Measures and Future Outlook
Southeast Asian governments have responded with increased protectionism as local businesses have demanded protection from the influx of Chinese imports.
Last year, Indonesia considered imposing 200% tariffs on a range of Chinese goods and blocked the e-commerce platform Temu, popular among Chinese vendors. Thailand enhanced import inspections and introduced additional taxes on goods valued below 1,500 Thai baht ($45; £34).
This year, Vietnam has twice implemented temporary anti-dumping duties on Chinese steel products. Following Trump’s recent tariff announcement, Vietnam is reportedly preparing to intensify measures against Chinese goods trans-shipped through its territory to the US.
Addressing these concerns would have been a priority on Xi’s agenda this week.
China is apprehensive that re-routing its US-bound exports to other global markets could “ultimately alienate and antagonize” its trading partners, David Rennie, former Beijing bureau chief for The Economist, stated on BBC’s Newshour.
“If a surge of Chinese exports inundates these markets, harming employment and livelihoods… it presents a significant diplomatic and geopolitical challenge for the Chinese leadership.”
China’s relationship with this region has not always been smooth. Except for Laos, Cambodia, and Myanmar, other nations are cautious of Beijing’s ambitions. Territorial disputes in the South China Sea have strained relations with the Philippines. Similar issues exist with countries such as Vietnam and Malaysia, but trade has served as a moderating factor.
However, experts suggest this balance may now be shifting.
Opportunities Amidst Disruption
“Southeast Asia previously had to consider whether provoking China was in their interest. Now, the situation is more complex,” notes Chong Ja-Ian, associate professor at the National University of Singapore.
China’s potential losses could translate into gains for Southeast Asia.
Hao Le in Vietnam reports a surge in inquiries from American customers seeking alternative electronics suppliers outside of China: “Previously, US buyers would require months to switch suppliers. Currently, such decisions are made within days.”
Malaysia, with extensive rubber plantations and the world’s largest medical rubber glove manufacturer, controls nearly half of the global rubber glove market. It is positioned to capture a larger market share from its primary competitor, China.
The region still faces a baseline 10% tariff, applicable to most nations globally. This is unfavorable, according to Oon Kim Hung, president of the Malaysian Rubber Glove Manufacturers Association.
However, even if the paused tariffs are enacted, he contends that customers will likely find the additional 24% tariff on Malaysian gloves more appealing than the 145% levy on Chinese-made gloves.
“We are not celebrating, but this situation may indeed benefit our manufacturers, as well as those in Thailand, Vietnam, and Cambodia.”