At the recently held Asia-Pacific Economic Cooperation (APEC) forum in Peru, leaders from member countries called for enhancing regional economic integration amidst rising geopolitical tensions and increasing fragility in supply chains. Asian countries are gearing up to tackle the protectionist approach adopted by elected President Donald Trump by focusing on regional and bilateral trade agreements aimed at boosting cross-border economic cooperation without U.S. involvement. Singapore’s Prime Minister, Lawrence Wong, emphasized the importance of revitalizing the Asia-Pacific Free Trade Area, an agreement still under negotiation among the APEC economies.
Trade agreements that exclude the United States are expected to become more appealing, especially since Trump withdrew from the Trans-Pacific Partnership in 2017 during his first term. This has increased the significance of economic arrangements independent of Washington, such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The RCEP, a trade agreement involving 15 countries in the Asia-Pacific region—including China, Japan, South Korea, and members of the Association of Southeast Asian Nations (ASEAN)—was signed in November 2020 after eight years of negotiations. Collectively, these countries represent about 30% of the global GDP, and trade among members rose by 5.5% between 2018 and 2021. Recently, China also signed a stronger trade agreement with Peru, while Indonesia reached a trade agreement with Canada.
Higher U.S. tariffs could heavily impact Asian economies, particularly those with trade-to-GDP ratios exceeding 100%, such as Singapore, Hong Kong, and Vietnam. Currently, only Singapore and South Korea have free trade agreements with the United States. The tariffs paid by importers in the U.S., collected by the U.S. Customs and Border Protection, raise costs that often get passed on to consumers, but they also harm foreign exporters by making their goods less competitive.
Trump has pledged that upon taking the oath of office for a second term on January 20, 2025, he will impose tariffs of up to 20% on a wide range of U.S. imports, along with 60% tariffs on Chinese goods, potentially reigniting the trade war with China, which has already cost Beijing 35billion,including35billion,including15 billion in 2018 alone. Therefore, China announced at the APEC forum that it has many trade partners and will work to boost domestic consumption and increase imports to enhance regional trade.
Any economic blow to China will have repercussions for the ASEAN countries that rely on Chinese consumption and demand for exports and tourism. Additionally, declining demand for Chinese goods will also impact input suppliers for Chinese producers in Southeast Asia. Indonesia, as the largest economy in Southeast Asia, will be the hardest hit, exporting 24.2% of its goods to Beijing, particularly raw materials. With Chinese exporters unable to ship their goods to the U.S., they might turn to Southeast Asia, where governments have already faced complaints from local producers harmed by the influx of imports of metals, textiles, and consumer goods.
The uncertainty concerning the tariffs that Trump will impose may halt companies from moving forward with investment plans in Southeast Asia. According to the Singapore Economic Development Board, American companies represented about half of Singapore’s investments in fixed assets, totaling 9.5billionlastyear.InhiscongratulatorymessagetoTrump,PrimeMinisterLawrenceWongquicklyremindedhimthattheU.S.hasa“consistenttradesurplus”withSingapore,whileabout409.5billionlastyear.InhiscongratulatorymessagetoTrump,PrimeMinisterLawrenceWongquicklyremindedhimthattheU.S.hasa“consistenttradesurplus”withSingapore,whileabout404.6 billion if Trump follows through on his commitments.
Finding a way for Asian countries to cope with the loss of access to the U.S. market will take time to establish new trading partnerships. For countries like Thailand, the timeline could extend to 24 years as trade shifts toward China, the European Union, Vietnam, and Japan. In the case of South Korea, it may take until 2038 to completely replace the U.S. as a trading partner. The tariffs promised by Trump could also encourage ASEAN governments to impose anti-dumping duties on Chinese goods, as Thailand did with steel this year. Stricter U.S. rules of origin might give governments the opportunity to ensure more high-value parts are produced and assembled locally, along with easing pressures on central banks in Southeast Asia to adopt a more accommodative monetary policy. Governments have already begun taking steps to reduce their excessive reliance on the U.S. or China by deepening relations with other countries and regions while asserting their neutrality. Southeast Asian economies are also expected to focus on building resilience by enhancing trade within ASEAN.
