SINGAPORE -- Six ASEAN economies, including Indonesia, Thailand and Malaysia, were left reeling Tuesday, after U.S. President Donald Trump threatened to impose punitive "reciprocal" tariffs, starting Aug. 1, on their goods and much higher levies on items transshipped from China.
Trump announced on Monday in Washington that he had sent letters telling Thailand and Cambodia they would face tariffs of 36%, Indonesia 32%, Malaysia 25%, and Laos and Myanmar both 40%. Only Vietnam, which has struck a deal with Washington, has received a significant reduction in the rate the U.S. president announced in April, down to 20%. However, goods transshipped through Vietnam face being hit with 40% tariffs.
Singapore, the Philippines and Brunei have yet to be told what their tariff rates will be.
ASEAN governments' efforts to engage the Trump administration to secure lower tariffs, often by agreeing to buy more American-made products, have borne little fruit so far. The renewed threats have sparked worries in governments and among analysts over further regional economic uncertainty. But observers pointed out that Trump has left the door open to efforts to talk him down from his aggressively protectionist position.
By zeroing in on transshipment, the Trump administration is aiming to crack down on a practice that began to gain traction after he launched his initial trade war with China during his first term.
Chinese exporters have increasingly moved final assembly or even finished goods to third countries, primarily in Southeast Asia, before shipping them to the U.S. to dodge tariffs. ASEAN members are consequently now in the firing line as Washington seeks to intensify measures against its biggest economic rival.
"The risks of being tagged with extremely high 'transshipment' tariffs is high," said Deborah Elms, head of trade policy at the Hinrich Foundation, a trade advocacy group. "I suspect firms will be pivoting away from an overreliance on the U.S.."
Priyanka Kishore, founder of macroeconomics consultancy Asia Decoded, predicted that "the region is likely to tread cautiously in policing transshipments, especially as China has threatened to impose tariffs of its own if countries strike deals with the U.S."
"Such a development could significantly impact Southeast Asia's industrial output, as it relies heavily on China for manufacturing inputs," she wrote in a note.
The Trump administration is using protectionism as a tool to address what it deems harmful trade deficits with trading partners around the world, pushing countries to consider buying American goods, or to use the U.S. as a production base.
But Trump's unpredictable dealmaking style, has left some analysts questioning the purpose of the fresh tariff threats made Tuesday on specific members of ASEAN, some of whom host significant low-cost, labor-intensive industries that supply the world.
"It is neither practical nor reasonable to expect reshoring of labor-intensive activities like garment manufacturing to the United States," Jayant Menon, visiting fellow at the ISEAS-Yusof Ishak Institute in Singapore, said. "All that these tariffs will do is raise the price of garments, leather goods and other similar imports from developing Asia, to the detriment of U.S. consumers."
Bhima Yudhistira Adhinegara, executive director of Indonesia's Center of Economic and Law Studies, suggested President Prabowo Subianto's government would need to improve its offer to Trump to reduce the bilateral trade gap.
"There is no progress on the negotiation side," he said. "The impact that we have tried to calculate if the U.S imposes a tariff of 32% on Indonesia is a decrease in economic output of up to 164 trillion rupiah ($10.1 billion, or 12% of the country's nominal gross domestic product in 2024). This will have a significant impact on the Indonesian economy because some labor-intensive sectors are still dependent on the U.S."
Given that Trump has shown a pattern of shifting deadlines and decrees throughout his trade war, some are hanging on to hope that continued talks remain the way to persuade the U.S. to back down.
Malaysia said Tuesday it will continue discussions "in good faith to address outstanding issues" with the U.S. -- its second-largest trading partner and largest export destination.
"These efforts are still ongoing and reflect Malaysia's willingness to reach a fair and sustainable outcome for both parties," a statement from Malaysian government officials said. "While we acknowledge the concerns raised by the U.S. regarding trade imbalances and market access, we believe that constructive engagement and dialogue remain the best path forward."
The Cambodian government said in a press conference Tuesday afternoon that negotiations with the US had resulted in a reduction of tariffs from 49% in April to 36%, and that talks with the Trump administration were ongoing, local media reported.
However, there was no mention of an announcement made last week by the Cambodian government that it had agreed a draft framework for reciprocal trade.
Shinta W. Kamdani, Chairperson of the Indonesian Employers Association, took a similar stance. "The Indonesian negotiating team is still in Washington, D.C., and as such, we need to make space for the ongoing diplomatic process," she said. "The Aug. 1 tariff implementation deadline shows that the path of diplomacy remains open and the opportunity to reach a constructive agreement is still available.
"We are pushing for a mutually beneficial scenario through increased imports of strategic commodities from the U.S., such as cotton, corn, dairy products, soybeans and crude oil."
For Vietnam, which was first out of the gate in ASEAN with some semblance of an as yet unspecified deal with Washington, Michael Wan, an economist at financial services giant MUFG, noted how the economy could get some "short-term relief" as peers in the region are hit with higher tariffs.
"It's nonetheless important to note that details are not firmed up for Vietnam, even as the headline tariff rates seem reasonably favorable at face value," Wan added. "Exporters across Vietnam and Asia more broadly were already frontloading their exports to the U.S., even before the announcement, and so we do expect some slowdown in export growth."
For Thailand, the 36% tariff rate set by the Trump administration puts it at a disadvantage relative to its neighbors like Vietnam and Malaysia, according to Kobsak Pootrakool, director and senior executive vice president of Bangkok Bank.
"It would also affect new investment," Kobsak said. "No one would come in and build a factory to produce products that could not be sold to a big market like the U.S. because of high import tariffs."
Still, analysts at Singapore bank DBS Group Holdings stressed that Trump's renewed tariff threats could be a form of "brinksmanship" that carries unclear outcomes.
"The silver lining is that these tariffs are only going to be effective Aug. 1, implying that there are still three weeks for negotiations," the analysts said in a note Tuesday. "Taken together, overly buoyant sentiment has been pared down, but the shock factor is nowhere near as close to what was seen on Liberation Day," they added, referring to April 2, when Trump first laid out the reciprocal tariff rates.
Reporting by Norman Goh in Malaysia, Mai Nguyen in Hanoi, Ramon Royandoyan in Manila, Ananth Baliga in Phnom Penh and Apornrath Phoonphonghiphat in Bangkok.
Ananth Baliga is a contributing writer.
