**London**: Southeast Asian countries, particularly Vietnam and Cambodia, navigate the impacts of stringent US tariffs which threaten their export-led growth strategies. With tensions rising between the US and China, regional cooperation and adaptive strategies are crucial for sustaining their economies amid evolving trade dynamics.
The Financial Times reports on the evolving trade dynamics in Southeast Asia as countries such as Vietnam and Cambodia find themselves navigating the effects of stringent US tariffs. Historically, these nations embraced an export-led growth strategy, taking advantage of opportunities created by the reorganisation of global supply chains triggered by the Covid-19 pandemic and increasing tensions between the United States and China. This strategy positioned them as key components in the “China plus one” manufacturing approach favoured by US and international businesses seeking alternatives to China for their production needs.
However, recent developments have posed significant challenges to these countries. Tariffs introduced by the Trump administration, described as “liberation day” tariffs, have resulted in steep charges of 46% on Vietnamese exports and 49% on goods from Cambodia. Peter Navarro, a trade adviser to former President Trump, articulated that the White House aimed to compel nations like Vietnam and Cambodia to choose sides between the US and China, with an emphasis on stopping China from circumventing tariffs by routing exports through these countries.
The impact of these tariffs has been substantial, affecting major American corporations such as Apple, Nike, and Intel, which have substantial operations or supply chains in Vietnam. These companies initially believed that constructing manufacturing bases in Southeast Asia was a beneficial strategy, both from a business and political perspective. Nevertheless, as reshoring operations, like T-shirt manufacturing, to the US becomes economically questionable, the necessity for viable plans to mitigate the repercussions of US policy becomes increasingly urgent.
In response, China has expressed its intention to retaliate against these US measures, declaring a resolve to “fight to the end” should Washington proceed with its punitive tariffs. Analysts expect that China may also have more means to retaliate effectively against the US than smaller Southeast Asian nations, which are focusing on diplomacy rather than confrontation to sustain their export activities. Countries in this region, predominantly benefiting from low labour costs, find it challenging to rethink their entire economic structures amid these pressures.
Malaysia’s Prime Minister Anwar Ibrahim is spearheading efforts to harmonise Southeast Asia’s response through the Association of Southeast Asian Nations (Asean), with a delegation from the group visiting Washington recently to engage in negotiations. However, the diverse economic interests of Asean members pose complications for a unified strategy. For example, Indonesia primarily exports commodities to the US, while the Philippines has a current account deficit and largely exports services.
Despite Vietnam’s proposal to eliminate tariffs on US imports, Asean countries face accusations from US officials, including Navarro, regarding alleged “cheating” via non-tariff barriers such as export subsidies, which may complicate potential deals. In order to counteract these challenges, Asean nations are likely to focus on strengthening inter-regional trade agreements, such as the Regional Comprehensive Economic Partnership, collaborating with China, Japan, South Korea, Australia, New Zealand, and further enhancing free trade relationships with the European Union and other Western markets.
Ultimately, the challenge for countries like Vietnam and Cambodia remains significant. Their economic dependency on China, situated geographically as a dominant force, complicates any straightforward allegiance to US interests, especially as the growth in Vietnamese manufacturing exports has been buoyed by Chinese companies relocating production to Vietnam. Analysts suggest that if the US administration pressures these nations without offering concessions, it could inadvertently drive them closer to China, the very nation the US strategy aims to curtail.
Source: Noah Wire Services
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