Southeast Asia's prosperity divide could potentially expand due to Trump's trade conflict?
The US tariffs, initially threatened by the Trump administration, have significantly disrupted Southeast Asian economies, particularly in the apparel and technology sectors. The tariffs, which range from 10% to 40%, have caused order cancellations, reduced export volumes, and threatened millions of jobs in these sectors.
In the garment industry, Indonesia, Laos, and Timor-Leste have been hit hard. Indonesia's garment exports to the US faced a tariff hike to 32%, later reduced to 19%, causing margin pressure and market uncertainty for factory owners. Laos, heavily reliant on garment and commodity exports, faces a 40% tariff that threatens 60,000 jobs and could increase poverty rates. Timor-Leste, with coffee as its main export to the US, confronts a 10% tariff with serious economic implications, impacting the livelihoods of 38% of its population.
Malaysia, on the other hand, has a thriving semiconductor industry, exporting around $14 billion worth of semiconductors to the US last year and employing about 80,000 people. However, the US tariffs could have negative impacts on this sector, as the US has announced 100% tariffs on imported semiconductor chips, except for companies that have already committed to manufacturing in the US or are in the process of doing so. The US plans to impose 40% tariffs on exports it deems "transshipment," but it is unclear if US exemptions for imported semiconductor chips will be applied consistently.
Southeast Asian states secured far lower tariff levies than many other parts of the world. Thailand, Malaysia, Indonesia, and the Philippines negotiated 19% levies, while Singapore was given the baseline 10% tariff. However, these lower tariffs might lead to higher unemployment or suppressed wage growth if there's a spike in imports to Southeast Asian states from countries seeking non-US markets.
Many lower-end manufacturing jobs in Southeast Asia involve importing raw materials from China, making only slight modifications or assembly, and then exporting the finished product to the US. If Washington adopts a broad definition for transshipment, analysts warn, entire industries could be wiped out. The White House will release rules on what qualifies as transshipment "in a few weeks."
Comparatively, tariffs on India and South Asian neighbors like Sri Lanka and Nepal also affect textile and garment exports but differ in magnitude and context. India saw the rollback of proposed tariffs from 44% to 20%, yet exports like Sri Lanka’s apparel could still decline by 12.1%, with broader economic impacts predicted by the IMF such as a GDP reduction of up to 1.5%. Nepal faces a baseline 10% tariff though with less clear application and effects given its smaller trade volume with the US.
China's global exports rose 7.2% in July, but shipments to Southeast Asia jumped 16.6%, while exports to the US fell by more than a fifth. This shift in trade could reduce US influence in Southeast Asia, as these tariffs might shift trade reliance more towards China and other non-US markets.
In summary, the US tariffs have caused significant disruptions in Southeast Asian economies, particularly in export-dependent industries like garments and technology. These tariffs threaten jobs, and might shift trade reliance more towards China and other non-US markets, reducing US influence in Southeast Asia.
| Region/Economy | Sector Impacted | Tariff Levels | Economic Impact | |---------------------|---------------------|-------------------|--------------------------------------------------------------| | Indonesia | Garments | Initially 32%, now 19% | Margin squeeze, order cancellations, uncertainty | | Laos | Garments, commodities| ~40% | Risk to 60,000 jobs, increased poverty and hunger | | Timor-Leste | Coffee (main export) | 10% | Significant effect on livelihoods, economic shock | | Sri Lanka | Apparel, rubber | Reduced to 20% from 44% | Expected 12.1% drop in apparel exports, GDP contraction | | Nepal | Carpets, handicrafts | 10% (baseline) | Trade volume small, effect unclear | | India | Textiles, garments | 20% | Disruption in key export industries, millions of jobs at risk|
- The media has been reporting extensively on the impact of the US tariffs on Southeast Asian economies, particularly in the garment and technology sectors.
- Asia, a significant contributor to global technology production, has been concerned about the potential negative effects of US tariffs on semiconductor exports.
- Environmental groups are warning about the potential environmental consequences of the shift in trade toward China, due to increased carbon emissions from extended supply chains.
- Some societies in Asia like Indonesia, Laos, and Timor-Leste are experiencing a squeeze in margins and threatening millions of jobs as a result of higher tariffs on their exports to the US.
- In the wake of these tariffs, numerous governments in the region are seeking to diversify their export markets to avoid dependence on the US, with news of increasing trade with Europe and Africa emerging.
