Today, this intricate network of the flow of raw materials, components and finished products of all kinds will “no doubt” be “gradually altered” no thanks to the spate of tariffs imposed by the US under President Donald Trump, says Ahmad Nazmi Idrus, head economist at CGS International.
“In the last trade war between 2018 - 2020, Asean countries saw a period of slower exports growth due to global supply chain readjustment and heightened uncertainties but ultimately gained over the longer term as these tariffs favoured them. Additionally, investments arising from the China+1 strategy also added to the economic momentum,” Idrus notes.
“That said, over the past several years, I think most exporters have somewhat diversified their product and supply chain enough to withstand possible shock. Because of that, the positive gain coming from global supply chains might be more nuanced,” he adds, pointing out that it remains unclear as to who will gain from the chain of events.
Currently, the level of tit-for-tat tariffs imposed by both China and the US is considered to be “mild” as it can still be absorbed through moves such as shrinking profit margins or a depreciation of the countries’ respective currencies.
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“But what this signals is the start of a series of tit-for-tat tariff wars leading to greater and more painful measures aimed at forcing China to come to some form of negotiation,” says Idrus.
In his view, the risks of Asean being targeted is “quite low” although Vietnam stood out amid its relatively large trade surplus with the US. Regardless, several countries have taken steps to mitigate this risk through some bilateral negotiation with the US, Vietnam included.
That said, the biggest threat on Asean so far stems from Trump’s recent executive order to raise tariffs for economists that don’t reciprocate.
Should that happen, this will “severely disrupt global trade flows” with no clear winner in sight.
