Cambodians awoke on April 3rd to learn that their exports to America would face tariffs of 49%. As they took in the news, experts warned that the country’s garment industry, which accounts for more than half of export revenues and sells most of its wares into America, would be devastated. While President Donald Trump delayed enforcement of the 49% rate on April 9th, it could yet come back.
So it came as some solace to Cambodians that China’s president, Xi Jinping, will arrive in Cambodia on April 17th. Though planned months in advance, the visit is shaping up as a much-needed boost to the developing country’s morale. “We are a small state, punished by the US,” says one Cambodian official. “And now Xi Jinping, as the leader of the second-largest economy, comes to us. So that helps to build our confidence. It is very emotional.”
South-East Asia was among the hardest-hit regions on Mr Trump’s poster-board in the White House Rose Garden on April 2nd. In addition to Cambodia, Vietnam is looking at 46% tariffs, Thailand 36%, Indonesia 32% and the Philippines 17%. Malaysian goods would receive a 24% levy, but the country benefits from an exemption for semiconductors, its leading export to America. After Mr Trump’s walk-back, rates for the region (as for most of the world) will now be set at 10% for 90 days.
Even Singapore received the baseline 10% tariff. This is despite the fact the city-state imposes no tariffs on America—indeed, it runs a trade deficit with America. Lawrence Wong, Singapore’s prime minister, delivered a statement to parliament on April 8th in which he declared the era of “rules-based globalisation and free trade” over, adding that America had “rejected the very system that it had created”.
Mr Xi’s visit to the region, then, might seem to be well timed to make hay out of his adversary’s mistake. He will first land in Vietnam on April 14th, where he is expected to announce a series of investments in infrastructure and higher-end manufacturing. He will then travel to Malaysia, where more such announcements are planned. Cambodia will be his final stop.
Diplomatic dance
But no country in South-East Asia, least of all Mr Xi’s three hosts, has given up yet on its relationship with America. In fact, they reacted to Mr Trump’s announcement with a sangfroid lacking in other parts of the world, treating it as the beginning of a negotiation and forgoing retaliatory tariffs.
Vietnam’s leader, To Lam, was among the first to call to Mr Trump after the tariffs were announced. He has offered to cut Vietnam’s tariffs on American goods to zero, and sent a negotiator to Washington. Cambodia’s prime minister has likewise offered to cut rates. Malaysia is sending a delegation to pitch a deal on supply chains and critical minerals. The region’s pragmatism now looks smart, with Mr Trump inviting negotiations and only punishing the countries that hit back.
The truth is that South-East Asia has little choice. No country in the region has the leverage of China or the European Union, which would give it a chance of a meaningful retaliation against America. Malaysia, the chair of the Association of South-East Asian Nations (ASEAN), has tried to cobble together a regional response. But few analysts give ASEAN much hope. Its members’ economies are very different, and it will be tricky to reconcile their interests in negotiations.
Though some fear that the threat of tariffs will drive South-East Asia closer to China, as yet there are few signs of such a shift. Those ASEAN countries with the closest security relationships with America (such as the Philippines, Thailand and Singapore) have not sought to link them to trade—if they were to try, it might well might backfire, given Mr Trump’s tendency towards isolationism. And though ties between China’s armed forces and those of Vietnam and Cambodia are close, Mr Xi is not expected to sign any new security deals on his tour of the region.
Hedging against a hegemon
Moreover, American tariffs complicate China’s relationship with South-East Asia. Officials fear that Chinese goods otherwise bound for America will now be dumped into their own markets. The region was already suffering from a glut of Chinese goods, which is now expected to increase. These will undermine demand for South-East Asian products, and, along with the accompanying blow to global demand, could lead to deflation. One Malaysian official calls this the “second-level trade war”—not between America and Asia, but among the Asian victims of Mr Trump’s tariffs. If ASEAN, which has a free-trade agreement with China, puts up barriers to Chinese exports in response, it will strain the region’s ties with the Asian giant.
Indeed, Mr Xi’s trip may be poorly timed. His hosts are wary of seeming too close to China just as they open negotiations with Mr Trump, and anxious about a flood of Chinese goods diverting domestic demand away from their own manufactures. Long-planned deals will go ahead, but diplomats do not expect any breakthroughs. That is not to suggest that America is in a position to reap geopolitical benefits from Mr Trump’s tariffs. Even if South-East Asian governments can secure one-off deals with the American president, the hit to global demand will shake economies around the region. Uncertainty over whether Mr Trump will put tariffs back in place or capriciously adjust their levels will leave investors reluctant to back new business in the region.
It is a stark contrast with Mr Xi’s visit. Unlike America, where policy swings wildly from day to day, rattling markets, Mr Xi is executing a decades-long strategy to slowly bind South-East Asia’s economy more tightly to China’s. It is a plan that carries risks for South-East Asia. But at least it is one the region can count on. ■