Will ASEAN be targeted by Trump?
With Trump's trade war against China raging on, it seems that the countries within the Association of South East Asian Nations (ASEAN) are major beneficiaries with some Chinese and multinational companies delocalising their operations towards the region. However there are increasing signs that the ASEAN region may also be at risk with Trump's global trade wars.
Since the beginning of the year, the Trump administration has been mainly focusing on America's massive trade deficit with China with multiple rounds of negotiations in Beijing and Washington. With the breakdown of the negotiations last month, President Donald Trump has since then upped the ante by imposing a 25% tariffs on $200 billion of Chinese imports. As a result, there are some companies that are seriously contemplating to move from China to ASEAN, so as to avoid these tariffs.
During his recent visit to Japan, Trump took a swipe at Japan's trade surplus and also put on notice the Japanese companies. As for Trump's grudge against the Europe Union's (EU) trade surplus, Trump has temporarily postponed his trade tariffs on European cars with the aim to strike a deal within the next six months. For the ASEAN Economic Community, it is not yet at the forefront of Trump's trade wars.
Nonetheless, Trump already fired warning shots at the leaders from the Asia Pacific Economic Cooperation (APEC) and ASEAN with his "America First" policy, when he attended the respective 2017 summits in Vietnam and Philippines. The ASEAN countries should heed his words, since an analysis of the United Nations Comtrade data shows that as a whole, the ASEAN region has a total trade surplus of about $111 billion with America in 2018, increasing by two times since 2010.
"... the ASEAN region has a total trade surplus of about $111 billion with America in 2018, increasing by two times since 2010."
This ASEAN trade surplus represents about 10% of the global American trade deficits in 2018. And as a whole, the ASEAN region has the third biggest trade surplus after China and the EU. Out of the 10 ASEAN countries, eight have been consistently accumulating trade surpluses over the last few years.
Vietnam, Malaysia and Thailand are the top three Southeast Asian countries with an accrued trade surplus of nearly $90 billion with the United States (US) in 2018. The fact, that the US Treasury Department has put Vietnam and Malaysia on its latest currency manipulation watchlist, indicates that the Trump administration has clearly the ASEAN countries within its radar. Hence, striking at ASEAN's trade surplus is not a matter of if, but when. And companies thinking of delocalising to Southeast Asia should really account for this real scenario into their short term strategic plans.
While the ASEAN trade with the United States has been steadily rising since 2010, increasing by 50% till 2018, the ASEAN trade with China is not only more than twice that with America, but is also increasing faster, doubling up since 2010 to reach $589.75 billion in 2018. This is because ASEAN signed a free trade agreement (FTA) with China in 2010 and trade has been steadily increasing, with China representing about 20% of ASEAN global trade in 2018.
The ASEAN Economic Community is also keen to join the China-led Regional Comprehensive Economic Partnership (RCEP) to increase its global trade. While ASEAN has already signed six FTAs, it does not have one with the United States. This probably explains why unlike with China, the ASEAN-US trade has stagnated at around 9% of its trade worldwide.
With its growing trade surplus with the US, Vietnam has already started taking preemptive actions to be in the good books of President Trump and his administration. For the second summit between Trump and the North Korean leader Kim Jong Un, Vietnam went all out to host the summit last February. Moreover, seizing on the opportunity of Trump's visit, the Vietnamese government welcomed him with a mega deal of $20.9 billion for the purchase of Boeing aircraft and GE engines by the Vietnamese airlines.
However, with the ongoing US-China trade war and more American companies sourcing for their products in Southeast Asia, the increasing trend of the ASEAN trade surplus will keep going on in the near future. If the Trump administration starts pressing the ASEAN countries to rectify their trade surpluses, it is yet to be seen how ASEAN as a group will respond. Rather than dealing with the ASEAN community, the Trump administration will likely force individual countries into bilateral negotiations.
In the event of a Trump trade war with ASEAN, the targeted countries may have to accept that their exports will face tariffs and other protectionist measures. But in doing so, the US will weaken further its influence within ASEAN. Hence, even if the Trump administration wins a pyrrhic victory against the ASEAN countries, America will push them further into China's embrace.
(published July 2019)