Southeast Asia Should Be Clear-Eyed As It Navigates Trump’s Tariff Fog

The rules-based trade system, put in place at the end of the Second World War, has been a primary driver of economic growth and development in every corner of the globe, especially Southeast Asia. With the sweeping new US tariff regime announced on 31 July (an earlier set of tariffs was announced on 2 April), US President Donald Trump has fundamentally rewritten the rules of global trade and shattered a system the US was largely responsible for creating and leading.

Under the post-war system, steadily decreasing global tariff rates were established through multilateral negotiations. While striving to reduce rates, members of the multilateral system also bound themselves not to raise rates above certain specified levels and to accord the same treatment — known in trade parlance as Most Favoured Nation — to all members.

While there are limited exceptions, members have enjoyed the stability of non-discriminatory treatment and the predictability of tariff policies set according to transparent rules for eight decades. 

Trump’s 31 July Executive Order — which covers over 90 countries and more than 70 per cent of global trade — essentially throws that old system out the window. New tariff rates ranging from 10 per cent to 41 per cent were arbitrarily “assigned”. A handful of countries entered into vague “framework” agreements with the US which reduced previously threatened rates, but most countries were simply informed of the new rates they would face.

Average US tariff rates that were 2.4 per cent in 2024 now hover around 18 per cent. The treatment of Southeast Asian countries runs the full gamut; from the baseline 10 per cent tariff on Singapore all the way up to 40 per cent on Laos and Myanmar. Given its role in regional supply chains, Southeast Asia will be further impacted by a 40 per cent tariff applied on “transshipped” products, although details on how this will operate are scant. 

Where does this leave us? Instead of the US leading a system established to reduce trade barriers and establish orderly rules, US trade partners now face dramatically higher tariffs that could be further increased at the whim of a president who disdains trade rules.

Given the scale and rapidity of the change, it is easy to lose sight of just how profoundly the world of trade has shifted. Southeast Asian leaders should be clear-eyed about the new realities. 

While trade relations have not returned entirely to a “law of the jungle” system, it has tilted dangerously back in that direction. For the small, trade-dependent nations of Southeast Asia, that is bad news indeed. 

Those countries without agreements that have been “assigned” tariff levels should not assume those rates will not be increased further. Trump has shown a proclivity to threaten the use of tariffs in response to any policy, activity, or statement he finds objectionable. 

Trump’s approach to tariffs has upended the development model that created the so-called Asian “tigers”. The steady reduction in barriers enabled by the rules-based trade system allowed countries to utilise export-led strategies to climb the development ladder. Japan led the way in the 1960s, followed by South Korea, Taiwan, Hong Kong, Singapore, and China.

Other Southeast Asian countries, including Vietnam, Malaysia, and Thailand, are in various stages of pursuing similar strategies. While policies, priorities, and approaches necessarily differ from country to country, the common thread is that all need open export markets and effective trade rules to achieve their developmental goals. 

Traditionally, the US has been the world’s largest consumer market and most voracious importer. Now that it is building a tariff wall around its economy and demonstrating hostility towards trade rules, a primary engine propelling export-led growth is sputtering.

The global economic dynamism is shifting from the West, and many countries in the Indo-Pacific have already begun diversifying away from the US. That said, however, the role of the US market remains critical. Vietnam, for example, relies on US exports to generate a stunning 30 per cent of its GDP. It would be naïve to think that the historically unprecedented role the US has played as an export market of first and last resort will be replaced quickly or easily, or that the US’ rejection of rules-based trade won’t have disruptive ripple effects across the broader trade landscape.

Worse yet, no one should assume that the conclusion of a handful of “deals” and the issuance of “final” tariffs is the end of the story. Trump regards trade policy as an ongoing reality show — and he knows that predictability is a ratings-killer. 

Countries that have secured “frameworks” with the US should be prepared for unanticipated snags and additional demands in the follow-on negotiations that are required. Any ultimate agreement reached could differ substantially from the “framework”; in the worst-case scenario, it could fall apart completely. Differences in “interpretation” have already arisen with Japan on the framework deal it hoped would restore stability. 

Those countries without agreements that have been “assigned” tariff levels should not assume those rates will not be increased further. Trump has shown a proclivity to threaten the use of tariffs in response to any policy, activity, or statement he finds objectionable. Brazil, for example, is facing 50 per cent tariffs in response to an internal judicial proceeding involving former President Jair Bolsonaro, a Trump ally. Trump has also reacted to a leaders’ statement issued by the BRICS grouping with the threat of an additional 10 per cent tariff because of its “anti-America” stance. 

Under the old system, trade policy was administered on the basis of trade considerations in accordance with agreed-upon rules. In this new era, the rules do not matter; virtually anything can provide the pretext for higher tariffs. The implications for Southeast Asia are clear. Predictability and stability will be in short supply. The export-led development path – and prospects for escaping the middle-income trap — will be considerably more precarious in Trump’s new trade world.

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