Of elephants and mice

“When elephants fight, the mice scamper.” When super powers clash, smaller nations must take cover.

President Donald Trump’s tariff war basically against China has caused serious problems for the tiger economies of Southeast Asia. Before the so-called reciprocal tariffs were paused to a uniform 10 percent, ASEAN nations were heavily penalized with tariffs reaching 46 percent on Vietnam, 36 percent on Thailand, 49 percent on Cambodia, 48 percent on Laos, 44 percent on Myanmar, 32 percent on Indonesia and 24 percent on Brunei and Malaysia. A 17 percent tariff was imposed on the Philippines and Singapore, 10 percent.

Apparently, in the eyes of Trump officials, Southeast Asia was an extension of China’s manufacturing engine. Channel News Asia reports that some American politicians believe Chinese companies have been using ASEAN countries as a cover for some time now. The Liberation Day tariffs will isolate China and block its use of third-party countries to ship cheap made-in-China products to America.

US suspicion has a basis because a good number of manufacturers in China fled to Vietnam, Thailand and Malaysia when increased tariffs were imposed during the first Trump term.

In the main event of this fight, China hiked its tariffs on imports of US goods to 125 percent in reaction to Trump’s order effectively raising tariffs on Chinese goods to 145 percent. Xi Jinping called Trump’s tariff strategy “a joke” and swore China will not capitulate. Additionally, China banned exports of rare earths and other raw materials essential in manufacturing today’s technology-driven products.

Xi’s reaction had been defiant even if this tariff war is a big problem because China produces a large amount of goods, a significant portion of which are exported rather than consumed domestically. The Chinese leader quickly went on a three-nation visit to Vietnam, Thailand and Malaysia, a charm offensive to convince the region’s tiger economies to “join hands and resist ‘bullying’ from the US.”

Xi sees the Trump tariffs as an American attempt to isolate China by rushing bilateral agreements with the condition that countries will reduce their trade with China. The Chinese commerce ministry warned China will take “countermeasures” against countries that sign such deals with the US.

But Trump blinked and announced a 90-day pause on duties on electronic and computer products including mobile phones, which will temporarily be assessed a 10 percent tariff. This Trump exemption was an admission of heavy US dependence on China for consumer tech products and imposing the punitive 145 percent rate will hurt American consumers more.

Trump is also now saying the high tariff on Chinese goods will “come down substantially but it won’t be zero.”

Xi received polite reactions from ASEAN countries who were more concerned with their own problems with the Trump tariffs. A meeting of ASEAN economic ministers stressed they are focused on not upsetting current negotiations with the US.

The US is ASEAN’s largest export market. In early 2024, the US surpassed China as the top destination for ASEAN exports. ASEAN enjoys a trade surplus with the US of approximately $200 billion, primarily driven by exports of high-tech electronics and manufactured goods. The US is also ASEAN’s largest investor.

There is another reason Xi Jinping received a tepid response from ASEAN countries.

“We’re about to be hit by a tsunami of Chinese goods for various reasons. One is the slowdown in domestic demand in China,” former Indonesian trade minister Mari Pangestu, who is deputy chair of Indonesia’s National Economic Council, told CNA.

“More importantly, the goods that were originally supposed to go to the US will have to find new markets. And the obvious markets are in this part of the world.”

Consumers may welcome cheap Chinese products but local businesses are being driven into bankruptcy, unable to compete with Temu and Shein among other Chinese marketing giants.

According to the BBC, more than 100 factories in Thailand have closed every month for the last two years, unable to compete with Chinese imports.

The Indonesian Fibre and Filament Yarn Producers Association estimates that 60 textile companies closed between 2023 and last year and as many as 250,000 workers were laid off.

Southeast Asian governments are responding with a wave of protectionism as local businesses demand to be shielded from the impact of cheap Chinese imports.

Last year Indonesia considered imposing 200 percent tariffs on a range of Chinese goods and blocked e-commerce site Temu for fear that small enterprises in Southeast Asia’s largest economy might be “destroyed.”

“We know that some brands like Mango, Zara, Nike, Adidas, H&M had to cut their production in Indonesia because they also have to compete with Chinese products in the US and also in Europe,” an Indonesian textile association spokesman told CNA.

This year, Vietnam has twice imposed temporary anti-dumping duties on Chinese steel products. And after Trump’s latest tariffs announcement, Vietnam is reportedly set to crack down on Chinese goods being trans-shipped via its territory to the US.

In a sense, BBC reports, ASEAN countries find themselves stuck between the world’s two biggest economies – China, a powerful neighbor and source of development assistance, and the US, a key export market that wants to strike a deal at Beijing’s expense. Beijing has financed construction of railways in Vietnam, dams in Cambodia and ports in Malaysia as part of its “Belt and Road” infrastructure program.

ASEAN countries will inevitably have to choose, prioritizing the protection of their US market share and also responding to fears of Chinese dumping of products displaced by Trump tariffs. If the US gives ASEAN countries a good deal in current bilateral negotiations, Trump may still trump China in this tariff war.

In our case, we are likely to miss all the excitement as usual because we lack proper trading infrastructure as well as the supply chain logistics that move these export-driven manufacturing businesses. Hindi tayo kasali. Maybe next time.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco.