What Do the US Forced Labour Tariffs Mean for Southeast Asia?

The US Trade Representative recently announced the initial results of its Section 301 investigation into forced labour practices involving 60 economies.  The investigation concluded that all economies under review had failed to adequately prevent the importation of products made by forced labour, and proposed a two-tiered tariff system of 10 per cent and 12.5 per cent.

The wide, 60-economy scope of the investigation captures most major trading partners and includes seven Southeast Asia countries: Cambodia, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. Indonesia is currently slated for the lower tariff of 10 per cent as a result of forced labour commitments under its Agreement of Reciprocal Trade with the US, while the others face the 12.5 per cent levy.

The tariffs are not yet final. USTR will solicit public comments (due by 6 July), conduct public hearings (on 7 July), engage in consultations (yet to be scheduled), and then finalise the investigation and tariff levels.

For the affected Southeast Asian countries, the initial results of the investigation are not good news. As regional leaders make their assessments, they should bear in mind several critical considerations.

Although the US has some legitimate concerns across most, if not all, of the identified 60 economies, the primary issue here is not forced labour. The real issue is the desire of the Trump administration to reconstitute, in whole or in part, the reciprocal tariff regime initially implemented in April 2025.

The authority the administration utilised to implement those tariffs — the International Economic Emergency Powers Act (IEEPA) — was subsequently struck down by the US Supreme Court in February of this year. Importantly, the court did not rule against the use of tariffs per se, but rather the specific legal instrument (IEEPA) the administration utilised. Indeed, the court pointed to other mechanisms the administration had at its disposal to implement tariffs. These include Section 301.

The administration initially opted to use IEEPA because it carried the least procedural baggage and provided the administration with wide discretion. By contrast, Section 301 requires a more formalised and time-consuming process. While the process is more cumbersome, however, it should ultimately allow the administration to arrive at its preferred destination: the implementation of tariffs to replace the negated IEEPA tariffs.

Shortly after the IEEPA tariffs were struck down, the administration turned to a more limited instrument — Section 122 — to temporarily implement a global 10 per cent tariff that is set to expire at the end of July. This tariff essentially serves as a ‘placeholder’ and the administration hopes to have Section 301 tariffs ready for implementation by July or August.

The forced labour investigation (along with a separate Section 301 investigation into excess industrial capacity) should therefore be understood as a procedural pretext to allow the administration to ratchet up its desired tariffs, rather than as pressing concerns about the specific issues under review. Indeed, there has been no dramatic recent deterioration in any of the targeted economies regarding forced labour. One need not be a cynic to wonder why these investigations were not launched previously if the concerns were so egregious. It was only after the Supreme Court ruled against using IEEPA to implement the reciprocal tariff regime that concerns about forced labour seemed to rise to the top of the US trade agenda.

The forced labour case will, unfortunately, be another example of the challenges Southeast Asian countries face in balancing between the US and China.

Affected trade partners should understand that, although it is more deliberative than IEEPA, Section 301 does provide the administration with fairly wide latitude. For instance, consultations will be conducted with any countries targeted by a Section 301 investigation, and it is possible that the country in question can agree to take remedial steps to address US complaints, in which case the initial tariffs can be lowered or dropped entirely. Conversely, if the US judges that the trade partner has not taken sufficient steps, or previously agreed steps have not been adequately implemented — or if the situation deteriorates for any reason — USTR can further increase the initial tariff levels. The ‘end’ of a Section 301 investigation is not necessarily the ‘end’.

Countries in the region should be prepared for the Section 301 process to be used by the US to keep steady pressure on trade partners. Given the critical role Southeast Asia plays in China-centric supply chains, the US will be particularly keen to see steps taken that will block imports from regions in China, such as Xinjiang, that the US maintains is a haven for forced labour.

As consultations unfold, we should not lose sight of the overall objectives of US trade policy in the region: to discourage economic linkages with China and reduce the trade surpluses some countries in the region maintain with the US. While the ostensible focus of the Section 301 case is forced labour, it will be pursued by the US to support these larger objectives.

Given the ambiguities in defining and identifying forced labour practices and implementing an airtight customs regime to block importation, any conclusions the US reaches about the policies its regional partners implement will be inherently subjective and potentially prone to manipulation.

We must also keep in mind that the disposition of this case is not merely between the US and the targeted economies. Any steps taken by partners in the region that could directly or indirectly limit imports from China as a result of US pressure will not escape notice in Beijing.  China has shown a willingness to target entities complying with US policies that damage Chinese commercial interests.

The forced labour case will, unfortunately, be another example of the challenges Southeast Asian countries face in balancing between the US and China. The starting point for regional leaders, however, should be a clear understanding about what the current case is really about.

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