December 16, 2024
WASHINGTON – The tariffs may sting, but South-east Asia can still strike some sweet deals with the growth-focused Trump administration.
Even amid a generally gloomy outlook under protectionist President-elect Donald Trump, who is due to begin his second White House term on Jan 20, prospects look good for more trade in energy, infrastructure and defence equipment.
With some luck, there might even be a digital free trade agreement (FTA) with Asean.
To decode what lies ahead in the next four years, The Straits Times spoke to seasoned experts in trade, business and diplomacy in the US as well as in the region.
Of topmost concern is Trump’s idea of universal tariffs of up to 20 per cent on all trade partners and at least 60 per cent on Chinese goods. These actions can set off tit-for-tat spirals and hit global trade volumes – a worrisome prospect for a trade-dependent region.
Still, the mix of Trump’s unpredictable decision-making, his penchant for transactional diplomacy, and specific plans such as achieving “energy dominance” and expanding oil drilling and the export of natural gas suggests that there could be gains for the region.
“Singapore’s status as a regional energy trading hub could align with Trump’s energy export drive,” said Mr Daniel Russel, vice-president for International Security and Diplomacy at Washington-based think-tank Asia Society Policy Institute.
It could also benefit nations such as Vietnam and the Philippines, which are seeking to diversify their energy sources and modernise infrastructure, he added.
Mr Ted Osius, president of the US-Asean Business Council, which represents 180 of the largest American businesses in South-east Asia, said that while there is no room for a proactive trade agenda under Trump, there could be a strategic sectoral approach.
“Our companies care a lot about the energy transition and the digital economy,” he said.
An agreement on trade in critical minerals – such as lithium, cobalt, graphite and gallium, which play a key role in the clean energy and digital transition of economies – is another area, Mr Osius added.
Mr Russel said he could see US private-sector investment in infrastructure and renewable energy gain traction as the Trump administration tries to promote an alternative to China’s Belt and Road Initiative.
The other area that evokes heightened interest is the digital economy.
Asean is expected to reach the world’s first regional digital economy agreement by the end of 2025. The Digital Economy Framework Agreement (Defa) will have rules for data flows, electronic transmissions and artificial intelligence standards as the region prepares for a trillion-dollar digital economy by 2030.
“The Defa that’s being negotiated within Asean could be a very positive launching point for discussions with the US on digital trade,” said Mr Osius.
Mr Frank Lavin, who was US ambassador to Singapore between 2001 and 2005 and had played a key role in negotiating the 2004 US-Singapore Free Trade Agreement, agreed.
Trump had signed a digital FTA with Japan during his first term, he pointed out, adding: “If he also pursues a digital FTA with Asean, this would be a nice step ahead for South-east Asia and the US.”
The second plus point for the region would be Trump’s orientation to growth.
“Through fiscal stimulus and low taxes, he is likely to keep growth on track,” said Mr Lavin, who is now a visiting fellow at the Hoover Institution and runs Export Now, a consultancy that helps American firms break into China’s e-commerce market.
Many governments have already latched on to Trump’s other proclivity, his transactional mindset.
Said Mr Osius: “Everybody is now in dealmaking mode.”
Vietnam made an overture even before Trump was elected on Nov 5, with then President To Lam meeting Trump during a visit to the US in late September.
During the meeting, Vietnamese real estate developer Kinh Bac City signed a pact with The Trump Organisation to develop a US$1.5 billion (S$2 billion) golf course and hotel project in Vietnam’s northern Hung Yen province.
During Trump’s first term, then Prime Minister Nguyen Xuan Phuc became the first Asean leader to be welcomed by Trump to the White House.
Indonesian President Prabowo Subianto was among the first Asean leaders to call Trump on Nov 11, about a week after his victory.
The US is still a very important market for Indonesian exports, pointed out Professor Dewi Fortuna Anwar, an academician of the Social Science Commission of the Indonesian Academy of Sciences. Indonesia’s top export destination is China, with the US in the second slot.
“I think President Prabowo will be able to get along well with President Trump, as they share a few similar characteristics. Both are nationalistic and populist leaders with a ‘strong man’ outlook,” said Prof Dewi.
Jakarta has reportedly also courted Mr Jared Kushner, Trump’s son-in-law, and Tesla chief executive Elon Musk, who has a prominent role in the Trump administration.
But Trump’s attention may not be easy to get as he grapples with the wars in Ukraine and the Middle East, as well as domestic priorities like corporate deregulation and the deportation of illegal immigrants.
During the Biden administration, the US upgraded partnerships with Indonesia and Vietnam, set up a new dialogue with Singapore on critical technologies, and established an infrastructure initiative in the Philippines. In 2022, the US-Asean relationship was elevated to a Comprehensive Strategic Partnership, and Mr Biden held a special summit for regional leaders in Washington.
Trump is more likely to view the region through the tariff lens.
He is likely to pursue an aggressive tariff policy, which poses a potential risk for South-east Asia, said Mr Lavin, the former US ambassador.
“Even if he applies tariffs to China only, there will still likely be implications for the South-east Asian countries that are part of a China-oriented supply chain,” he said.
Citing the example of a US manufacturer that sources 10 per cent of its inputs from China and another 10 per cent from South-east Asia, he said that if Trump imposes tariffs on Chinese imports – as he did in his first term – the manufacturer would see its costs go up on the first 10 per cent.
“South-east Asia will not be directly affected, but if there is an overall price rise stemming from the China tariff, there could be a drop in demand, thereby hurting South-east Asian economies that also supply the same manufacturer,” Mr Lavin said.
The US overtook China to become Asean’s largest export market in early 2024, with as much as 15 per cent of the grouping’s products landing on American shelves.
Asean is the US’ fourth-largest trading partner, with trade between the two hitting nearly US$500 billion in 2023. The balance is in the region’s favour, with a US$200 billion trade surplus, mainly from the exports of high-tech electronics and manufactured goods.
It is these surpluses that could attract Trump’s ire.
Trump may wield the threat of tariffs to get at some of the region’s biggest manufacturing economies that export more to the US than they import from it. While Singapore runs a trade deficit with the US, the surpluses racked up by Vietnam, Thailand, Malaysia and Indonesia could come under scrutiny.
Mr Manu Bhaskaran, chief executive officer of Centennial Asia Advisors, a Singapore-based research and advisory firm focused on emerging economies in the Asia-Pacific, said the US may target the tariff evaders as it trains its eye on the trade surpluses.
“There are countries whose trade surpluses with the US have grown and which are importing a lot more from China, raising suspicions that Chinese exporters are sneaking their exports into the US through those countries. Vietnam comes to mind, and perhaps Malaysia as well,” he said.
The US-Asean Business Council’s Mr Osius said the region will have to prepare for potential retaliatory tariffs.
“All the countries of the Indo-Pacific are going to be faced with the dilemma of shutting out Chinese imports, or grin and bear the tariffs. It is going to be very popular in Washington to say that we’re going after those countries that allow transshipments of Chinese goods through their countries,” he said.
Vietnam attracts attention as it has the fourth-largest trade surplus with the US, next only to China, Mexico and the European Union. Exports from Vietnam accelerated as manufacturers shifted factories away from China to avoid the impact of US tariffs in recent years.
Mr Bhaskaran noted that the region would continue to benefit from production relocation out of China.
“The foreign direct investment data certainly shows that,” he said.
A lot depends on how these countries respond, Mr Bhaskaran said.
They could placate the US, like Vietnam did during Trump’s first term, promising to increase imports, he said.
Buying American defence equipment is one solution.
Add to that the geopolitical equation.
“The US will also have to take into consideration the strategic value of South-east Asian nations,” Mr Bhaskaran said.
“Does it really want to alienate them as the US faces off in a bigger power struggle with China?”