By The Straits Times | Created at 2025-04-03 11:00:46 | Updated at 2025-04-04 06:56:41
20 hours ago
BANGKOK – Vietnam produces about half of sporting giant Nike’s shoes, hosts an Intel chip assembly plant, and is a major hub for the production of Apple’s watches and AirPods. Major apparel retailers Abercrombie & Fitch and Lululemon rely heavily on both Vietnam and Cambodia for their production. And electric carmaker Tesla signed a US$5 billion (S$6.7 billion) deal in 2022 to source nickel from Indonesia for its e-vehicle production.
South-east Asian nations have been among the hardest hit by the latest Trump tariff rout across the globe, which has dealt a heavy blow to the region’s export-reliant economies, and potentially jeopardises their growing role as a low-cost alternative to China in the supply chains of some of the world’s most recognisable brands. This will in all likelihood translate to higher prices for consumers in the US and beyond.
Washington on April 2 (April 3 in Singapore) said it will slap levies of 46 per cent on Vietnamese exports, Thailand will be hit by 36 per cent duties and Indonesia 32 per cent, as part of what the White House terms “reciprocal” tariffs that it says were determined by a calculation of levies and non-tariff barriers imposed on American exports.
The region’s smaller economies were far from spared, with Cambodia at the receiving end of the highest reciprocal levy of all countries at 49 per cent, Laos at 48 per cent, and Myanmar at 44 per cent.
US consumers may also find higher price tags for Apple’s ubiquitous iPhone and its range of Mac computers as well as the Microsoft Xbox gaming console, as a result of a 24 per cent tariff on Malaysian goods.
Countries across South-east Asia have in recent years sought to benefit from multinational companies seeking viable alternatives to China as a production hub for everything from electronics to garments. A main motivation for the Trump administration targeting countries like Vietnam and Cambodia, however, is to crack down on what it says is transshipment and trade rerouting by Chinese manufacturers to evade US tariffs.
“It puts at risk a lot of the advantages the South-east Asian countries, particularly Vietnam, has gained,” said Trinh Nguyen, a senior economist covering emerging Asia at Natixi. “As a result, it will not just impact the region’s exports but also investment (in the region),” she added.
The punitive tariffs aimed at Vietnam were also noteworthy, given that country’s efforts to convince the Trump administration that it is sincere about addressing its trade surplus with the US, which widened to US$123.5 billion last year, the third-highest behind China and Mexico.
The tariff tirade also increases the likelihood of driving the region’s countries, most already receptive to China’s strategic overtures, further into Beijing’s embrace. President Xi Jinping is expected to visit Vietnam, Malaysia and Cambodia in mid-April, in what would be his first overseas trip of 2025, as Beijing seeks to capitalise on the tariff upheaval and assert that it is a more reliable partner than the US.
Vietnam had been one of the biggest winners of the first iteration of US President Donald Trump’s trade war that started in 2018 during his first term in office. Foreign multinationals seeking to derisk their global supply chains as part of a so-called ‘China+1’ strategy flocked to Vietnam’s shores, while Chinese factories also saw the South-east Asian nation as a handy manufacturing base from which to ship goods and skirt US tariffs.
But it was that success which saw Vietnam’s trade surplus with the US balloon. This also leaves Hanoi particularly exposed to the impact of the Trump administration’s tariff threats, just as it embarks on an ambitious domestic growth agenda. Vietnam’s exports to the US grew to 30% of its gross domestic product (GDP) in 2024, with electronics (43 per cent) and textiles (24 per cent) the biggest contributors.
“I opened my eyes this morning and was completely stunned. This 46 per cent tax rate is beyond anything we could have imagined,” Duong Thi Ngoc Dung, vice chairwoman of Vietnam’s Textile Apparel Association, told Bloomberg on April 3. “There is a high risk that many Vietnamese businesses will be forced to shut down, putting thousands of workers out of jobs,” she said.
Major Malaysian exports such as rubber gloves and a wide range of medical devices including ultrasound machines, pacemakers and hospital beds will also be hurt by a 24 per cent tariff rate.
However, Malaysian glove counters were among the top gainers on the local bourse on April 3, as competing markets like China and Thailand were slapped with higher tariffs, giving Malaysian producers a relative advantage.
Still, the picture as a whole is gloomy, as the overall impact to Malaysia will also spread to domestic consumption, according to Socio-Economic Research Centre executive director Lee Heng Guie.
The economist said GDP will be affected not just by exports, but also incomes – as businesses related to the trade sector will see lower revenue, which will knock on to employment and wages – as well as caution from investors.
“Even though Malaysia was hit by a lower rate than other regional peers, firms will still have to discount for softening global demand. So you may be able to get a larger slice of the pie, but the pie is now smaller,” he noted.
There is less clarity over whether Malaysia’s growing semiconductor supply chain for devices such as iPhones and Mac computers falls under categories such as diodes, transistors and integrated circuits, which have so far been exempted from the reciprocal country tariffs.
“The greater impact will be a slowdown in investments in the E&E (electrical and electronics) sector because of tariff uncertainties, which will likely last for the rest of 2025, if not beyond,” Malaysian Investment Development Authority board member Ong Kian Ming told The Straits Times, referring to expectations that the semiconductor sector will face further scrutiny from Washington down the road.
E&E makes up 40 per cent of Malaysian exports, of which half is destined for the US.
Indonesia also said it could potentially benefit from being less targeted by tariffs than some of its regional neighbours.
“If countries affected by reciprocal tariffs face higher export costs to the US, we may see industrial relocation to other nations perceived as safer from these measures, including Indonesia,” said Deni Surjantoro, Head of the Bureau of Communication and Information Service.
In a nod to concerns regarding Chinese trade rerouting through Vietnam, trade minister Nguyen Hong Dien said during a US visit on March 13 that Hanoi was implementing mechanisms to prevent trade fraud and illegal transshipments.
Hanoi then slashed import taxes on a range of products, including liquefied natural gas and automobiles that came into effect on March 31.
Mr Trump has indicated he would consider lowering tariffs if other nations removed their trade barriers on US exports, and some analysts say the maximalist approach represented a high watermark from which rates could be negotiated down.
Thailand’s Prime Minister Paetongtarn Shinawatra told reporters on April 3 that there was scope for negotiations to bring tariffs down to a more reasonable level, and that the government would devise short-term measures to deal with impact on manufacturers and exporters.
Malaysia’s Investment, Trade and Industry Ministry said on April 3 it was not considering retaliatory tariffs, as it is “actively engaging with the US authorities to seek solutions that will uphold the spirit of free and fair trade.” It added that the first meeting of the Asean Geoeconomic Task Force – established at the Asean Economic Ministers’ Retreat in February 2025 – will also commence soon to discuss any multilateral response.
Vietnamese Prime Minister Pham Minh Chinh said in January that he was willing to visit Mr Trump at Mar-a-Lago to “golf all day long” if that would help matters. While that is not yet on the agenda, Vietnam will send another delegation of top business executives to New York later in April, led by Deputy Prime Minister Ho Duc Phoc.
“There are more cards that could be used as opening doors for US investors, removing non-tax barriers to commodities … but the downside is they lie in the distant future. In the coming week, it can only be promises, not concrete actions,” Minh Duc Nguyen, manager of the US-ASEAN Business Council, said in a statement on April 3. “The pressure is huge on the deputy prime minister.”
- Philip Wen is regional correspondent at The Straits Times, covering South-east Asia from his base in Bangkok.
- Shannon Teoh is The Straits Times’ bureau chief for Malaysia, where he has reported on various beats since 1998.
- Stania Puspawardhani is Indonesia correspondent for The Straits Times, based in Jakarta.
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