Trump’s ‘Liberation’ Day Unlikely to End Well for Southeast Asia — or Anyone

“Liberation” day has arrived in the US, and as promised, the Trump administration has unveiled its plans for an unprecedented swath of tariff increases. Declaring the lack of reciprocity in its bilateral trade relationships to be an “unusual and extraordinary threat” to the national security and economy of the US, President Trump has announced a 10 per cent across-the–board tariff on all countries and double-digit “reciprocal” tariffs on those countries deemed to be the worst offenders.  China’s tariff rate is 34 per cent while the EU was hit with a 20 per cent tariff. In Southeast Asia, Vietnam was assessed a 46 per cent rate, Thailand at 36 per cent, Indonesia at 32 per cent, Malaysia at 24 per cent, and Cambodia at 49 per cent. The wealthiest country in the region, Singapore, got off relatively lightly, with only the baseline 10 per cent being applied. (Full list available here).  Of note for at least some countries in Southeast Asia, semiconductors will be exempted from the reciprocal tariffs.

Two of President Trump’s earlier trade targets, Canada and Mexico, got relatively light treatment — at least for now. The previous order on fentanyl and immigration remains in effect, meaning that products complying with the US-Mexico-Canada Agreement (USMCA) will enter the US duty-free, while most non-compliant products will face a 25 per cent tariff. Both Canada and Mexico have been in nearly non-stop discussions with the Trump administration aimed at heading off multiple and varied tariff threats. The previously announced sector-specific tariffs on automobiles and steel and aluminum of 25 per cent will, however, remain in place and Canada’s Prime Minister has already promised countermeasures. 

The Executive Order states that countries that retaliate will face further tariff increases. Tariffs could also be increased if conditions “worsen”, while tariffs could be decreased for those countries that “remedy” non-reciprocal treatment.

What does all this mean? The world’s largest importer has now essentially hung a sign on its border saying: “closed for business”.  

While smaller or less-affected trade partners could conceivably lower their heads and do nothing, countries hit hardest by the tariffs must now choose between two options: Either hold firm and adopt appropriate countermeasures in the hope that Trump will be forced to back down, or look to cut “deals” with Trump in order to reduce or eliminate the tariffs. It is unlikely that either scenario will end well.

For those countries holding firm, there should be little doubt that Trump will further escalate. This could take the form of even higher tariffs, investment restrictions, or potentially even measures to exploit the leverage of the dollar’s role as the world’s reserve currency. Beyond the economic realm, everything is on the table, and pressure could also be exerted in the context of security arrangements the US has in Southeast Asia and around the world. Once this cycle of retaliation and counterretaliation begins, it is impossible to know exactly where it will end, but the damage wrought by the tariff-fueled global trade war of the 1930s could very well pale in comparison.

One potential off-ramp would be a deep and prolonged drop in US financial markets. As we have already seen, Trump seems willing to brush aside short-lived sell-offs, but a significant market downturn, along with a spike in inflation generated by the tariff increases, would threaten the Republicans’ control of Congress in the 2026 mid-term elections. Loss of Republican majority would jeopardise Trump’s entire agenda and also expose him to likely Democrat-led Congressional investigations into the conduct of his administration. This scenario could be sufficiently daunting to force Trump to retrench on tariffs. At that point, however, there’s no telling how deep the damage to the US economy and its main trade partners might be.

The world’s largest importer has now essentially hung a sign on its border saying: “closed for business”. 

Should some or all of the major impacted trading nations successfully negotiate concessionary agreements to avoid tariffs and the inevitable trade war, no one should celebrate. At that point, Trump will have essentially transformed trade relations from a system based on mutually agreed rules and progressively freer trade into something akin to a “protection racket” run by an organised crime syndicate. The basic premise is that you pay in order to avoid pain. In the criminal world, this means shop owners pay money to mobsters in order to avoid having their stores burned down. In Trump’s trade world, it means that countries offer concessions or make commitments to purchase US products in order avoid draconian tariffs. And as explicitly provided for in the Executive Order, the price to avoid pain could be raised over time.

The reciprocal tariffs are slated to come into effect on 5 April, and at least some countries will seek “fast and furious” negotiations to try to head-off their implementation (and negatively impacted US multinational corporations could also weigh in). One has to wonder about the bandwidth of the Trump administration to simultaneously engage in discussions with such a potential long list of countries.  Perhaps most importantly, countries will also have to judge the likelihood that the Trump administration will actually abide by any trade agreements it reaches. In any case, though, when it comes to the US market, trade partners will have to “pay to play”.

Irrespective whether countries seek deals or hold firm and strike back, there seems little hope that after the dust settles, anything approaching the pre-existing rules-based global trade system can be restored.  Although that system has been badly wobbled for roughly a decade, Trump’s “liberation” day could finally push it over the brink. While this will be damaging in every corner of the globe, the small, trade-dependent countries of Southeast Asia will find themselves most vulnerable.

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