Nick Marsh
BBC News
Report from kuala lumpurastuestra ajengrastri
BBC Indonesia
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Southeast Asia is a clear choice for China’s exports to the US, currently looking for a new market
When President Donald Trump hit China with tariffs in his first term, Vietnam entrepreneur Hao Lu saw the opportunity.
His company is one of hundreds of companies that have emerged to compete with Chinese exports increasingly facing restrictions from the West.
Located in Hai Duong’s budding industrial hub, Le’s Shdc Electronics sells $2 million worth of phones and computer accessories to the United States each month.
However, if Trump imposes a 46% tariff on Vietnamese goods, its revenue could drain. This is a plan that is pending until early July. It’s “devastating for our business,” Le says.
And selling to Vietnamese consumers is not an option, “We cannot compete with Chinese products. This is not just our challenge. Many Vietnamese companies struggle in their own home market.”
Trump’s tariffs in 2016 sent cheap Chinese imports to Southeast Asia, originally intended for the US, hurting many local manufacturers. But they also opened new doors for other businesses and became a global supply chain that often wanted to reduce their dependence on China.
But Trump 2.0 is threatening to close these doors. And that’s a blow to burgeoning economies like Vietnam and Indonesia, which are bombarding to become key players in the industry from chips to electric vehicles.
They also found themselves stuck between the two biggest economies of the world. China is a major export market that could aim to trade with China, its powerful neighbour and largest trading partner, at Beijing’s expense.
And this week, Xi Jinping’s long-standing trip to Vietnam, Malaysia and Cambodia has brought new urgency.
All three countries deployed the red carpet for him, but Trump saw it as more evidence of conspiring to “screw” the US.
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Xi Jinping met Malaysian Prime Minister Anwar Ibrahim this week when Chinese leaders visited Southeast Asia to strengthen their economic ties
Reports say the White House will use future negotiations with the small country to pressure it to limit its deal with Beijing.
But that could be a fantastical ambition given the amount of money flowing between China and Southeast Asia.
In 2024, China scored a record of 3.5 tonnes from exports. 16% of them went to Southeast Asia, the largest market. Beijing has paid for Vietnamese railways, Cambodian dams and Malaysian ports as part of its “belt and road” stripping programme that seeks to boost relations abroad.
“We can’t and never choose [between China and the US]”Malaysian Trade Minister Tunk Zahuru Aziz told the BBC on Tuesday ahead of XI’s visit.
“If the issue is about something that I think is against our interest, we will protect it. [ourselves]. ”
Wake Up Call
A few days after Trump announced his sweeping tariffs, the Southeast Asian government scrambled into transaction production mode.
The latter offered to completely dispose of tariffs on US goods, as Trump described as a “very productive call” with Lam’s Vietnamese leader.
The US market is extremely important for Vietnam, an emerging electronic powerhouse where manufacturing giants like Taiwanese companies like Samsung, Intel and Foxcon have contracted to manufacture iPhones.
Meanwhile, Thai officials head to Washington with plans that involve higher US imports and investments. As the US is their biggest export market, they want to avoid a 36% collection in Thailand, where Trump could recover.
“We will tell the US government that Thailand is not only an exporter, but also an ally and economic partner that the US can rely on for the long term,” said Prime Minister Paetontan Sinawatra.
The Association of Southeast Asian Countries (ASEAN) has chosen to rule out retaliation against Trump’s tariffs and instead highlight the economic and political importance to the United States.
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Samsung is one of many multinational companies that have come to Vietnam to diversify its supply chains.
“I understand the concerns of the US,” Zahuru told the BBC. “That’s why we need to show that in fact we, ASEAN, and in particular Malaysia, could become that bridge.”
This is the role that Southeast Asia’s export-driven economy is functioning well. It benefits from both trade and investment in China and the US. But Trump’s suspended taxation could derail that.
Take Malaysia, for example. In recent years, chipmakers from the US and elsewhere have invested there as Washington has blocked the sale of Advanced Tech to China. Last year, China imported chips worth $18 billion from Malaysia. These chips are usually used in Chinese electronic devices such as iPhones that are bound by the US.
Trump’s proposed tariffs (24%) on Malaysia could block the multi-billion-dollar US market. But that’s not all.
“If this continues, companies will need to rethink their investment commitments,” Zafru says. “This will affect not only Malaysia’s economy, but the global economy.”
Since then, Indonesia, which could face 32% tariffs, is home to huge nickel reserves, aiming to the global electric vehicle supply chain.
Cambodia, a Chinese ally, faces the steepest taxation: 49%. One of the poorest countries in the region thrives as a transport hub for Chinese companies seeking to cut US tariffs. Currently, Chinese companies own or operate 90% of their clothing factories and export primarily to the US.
Trump may have suspended these tariffs, but “the damage will be done,” says Doris Liu, an economist at Malaysia’s Institute for Democracy and Economic Affairs.
“This serves as a wake-up call for the region not only to reduce dependence on the US, but also to re-dependent on single trade and overdependence on export partners.”
China’s losses and Southeast Asia’s profits
In these uncertain times, Xi Jinping is about to send a message that is steady. Hold hands and resist “bullying” from the United States.
That’s not easy as there is also trade tensions with Beijing in Southeast Asia.
In Indonesia, business owner Isma Savitri worries that Trump’s 145% tariff on China means competition from Chinese rivals that can no longer be exported to the US.
“We feel that small businesses like us are narrowing down,” says the owner of Sleepwear brand Heropopy. “We struggle to resist the onslaught of ultra-stable Chinese products.”
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Such local businesses in Jakarta are preparing for the influx of goods from factories in China
One of Heropoppy’s popular pajamas is available for sale for $7.10 (119,000 Indonesian rupiah). Isma says he saw a similar design from China looking at about half its price.
“Southeast Asia has naturally become a dumping ground due to its open trading regime and its rapidly growing marketplace,” says Nguyen Khac Giang, a fellow at Singapore’s Isos Yusof Ishak Institute. “Politically, many countries are reluctant to stand up to Beijing, which adds another layer of vulnerability.”
Consumers have welcomed competitive Chinese products, from clothing to shoes, to shoes, but thousands of local businesses have not been able to match such low prices.
Estimates from Thai think tanks show that over 100 Thai factories have been closed every month for the past two years. About 250,000 textile workers were fired after about 60 clothing manufacturers were closed during the same period in Indonesia, local trade associations include Sritex, once the region’s largest textile manufacturer.
“When we see the news, there are a lot of imported products that are overflowing with the domestic market that are ruining our own market,” Mujati, a worker fired from Sritex in February 30 years later, tells the BBC.
“Maybe it wasn’t our luck,” the 50-year-old is still looking for work. “Who can you complain to? There’s no one there.”
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China’s factories cannot afford to lose another important export market, such as Southeast Asia
The Southeast Asian government responded with a wave of protectionism as local businesses demanded that they be protected from the effects of Chinese imports.
Last year, Indonesia considered 200% tariffs in China’s range and blocked Temu, an e-commerce site popular with Chinese merchants. Thailand tightened its import inspections and imposed additional taxes on items under 1,500 baht ($45, £34).
This year, Vietnam has imposed two temporary damping obligations on Chinese steel products. And after Trump’s latest tariff announcement, Vietnam is reportedly to crack down on Chinese goods being transferred to the US through its territory.
Relieving these fears would have been on XI’s agenda this week.
China told the BBC’s Newsur that channeling US exports to other parts of the world “really alienates and exacerbates” David Renny, former director of Beijing, of the Economist Newspaper.
“If China’s tide waves of exports were to overwhelm those markets and hurt jobs… that would be a massive diplomatic, geopolitical headache for Chinese leaders.”
China does not always have a simple relationship with the region. Others are wary of Beijing’s ambitions, except for Laos, Cambodia and war-torn Myanmar. Territorial disputes in southern China have aggravated relations with the Philippines. This is also a problem with others, such as Vietnam and Malaysia, but trade was a balanced factor.
But that could change now, experts say.
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Malaysia is the world’s largest manufacturer of medical rubber gloves
“Southeast Asia had to think about whether they really wanted to anger China. Now this makes things complicated,” says Jung Jae-an, an associate professor at the National University of Singapore.
China’s losses could be in Southeast Asia’s profits.
Vietnam’s Hao Lu says he saw a surge in inquiries from American customers scouting for new electronics suppliers outside of China.
With its vast rubber farms and the world’s largest medical rubber gloves manufacturer, Malaysia has almost half of the global market for rubber gloves. However, they are poised to grab a larger share from their major competitor, China.
The region, like most of the world, faces a baseline tariff of 10%. And that’s bad news, says Ohon Kim Hang, president of the Malaysian Rubber Glove Manufacturers Association.
But even if suspended tariffs begin, he says, customers are very hoping to pay an additional 24% for Malaysian gloves rather than a 145% levy where they have to cough for Chinese-made gloves.
“We’re not jumping precisely with joy, but this may help not only our manufacturers, but also our manufacturers in Thailand, Vietnamese and Cambodia.”
Additional reports from Abhiram v Subramaniam
