Southeast Asia could see a new wave of factories coming from China to escape rising tariffs that US President-elect Donald Trump has proposed imposing on the world’s second-largest economy, trade experts tell VOA .
But the trade surpluses that the region has accumulated with the United States and its heavy reliance on Chinese inputs for its own exports could blunt the benefits, they add.
A number of companies with factories in China, both domestic and foreign, have moved their factories to Southeast Asia to circumvent tariffs imposed by Trump on the country – up to 25% on some products – during his first term from 2017 to 2021. In his second term, which begins in January, Trump threatened to increase tariffs on all imports from China to 60%.
If that happens, “the speed of offshoring will accelerate and we will almost certainly now find ourselves in a world of bifurcated supply chains,” said Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.
“This means a world in which the most important manufactured goods are produced not once but twice using two sets of supply chains,” he added, one for the US and possibly European markets and another for everyone else.
And while the first wave of offshoring mainly attracted Southeast Asian factories hungry for cheap labor, the second could attract factories that rely more on equipment, technology and other capital to make machines, electronic devices, cars, etc.
“Countries that can closely replicate China’s costs and conditions will benefit, and at the moment many of these countries are in Southeast Asia,” Menon said. “Other countries could benefit if they seize this opportunity, but at the moment, Southeast Asia is the closest competitor. »
Aat Pisanwanich, associate professor at the Thailand Center for International Trade Studies, agrees.
Faced with even higher U.S. tariffs than before, Chinese factories “will come to Thailand and other ASEAN countries more than (during) Trump 1,” he said, referring to the Association of Southeast Asian Nations and Trump’s first term.
Memon said most of the factories that left China for Southeast Asia after Trump’s first round of tariffs went to Malaysia, Thailand and Vietnam, and those that flee the second series will follow suit. He added that Cambodia and Laos – both very close to China – as well as Indonesia could also start to attract more interest.
Some of the sub-region’s largest developers and operators of industrial parks have reportedly already started preparing for an expected influx by expanding their sales teams and hiring more Chinese.
But trade experts say Trump’s stance on tariffs, and on international trade in general, also poses risks for Southeast Asia that could mitigate, or even exceed, the potential benefits.
Trump has repeatedly denounced the trade surpluses that many countries besides China have accumulated with the United States and suggested reducing them also by raising tariffs on their products or imposing other trade restrictions.
This could prove problematic for many Asian countries, and particularly Vietnam, said Deborah Elms, head of trade policy at the Hinrich Foundation, a Singapore-based research group focused on sustainable global trade.
Trump called Vietnam “almost the worst abuser” of the global trading system in 2019, when the country’s annual trade surplus with the United States stood at $55.8 billion. Since then, it has well exceeded $100 billion.
“This time around, it puts Vietnam in the crosshairs of retaliation, making it a less popular place for business, because you don’t want to leave China and move to Vietnam, only to find yourself hit by more customs duties and others. trade restrictions because you’re now in Vietnam and they’re trying to restore the balance of trade,” Elms said.
Indonesia, Malaysia and Thailand also now run trade surpluses with the United States in the tens of billions of dollars.
The other major risk facing the region, according to experts, is the increasing attention the United States is paying to imports not only from China, but also from any other country with a significant share of Chinese inputs, and the additional trade restrictions they may also face in Trump’s second term. term.
“That would pose a real problem for Southeast Asia because you can move manufacturing – you can sew a T-shirt in the region, you can make a phone case in the region, whatever, that goes to the United States – but a lot “Most of the raw materials, parts and components of these products, whether fabrics, plastics, screws or anything else contained in the product , is imported from China,” Elms said.
Aat, of the Center for International Trade Studies, said factories that set up shop in Southeast Asia to export but continue to rely heavily on Chinese inputs are also crowding out producers in the subregion who could supply them instead, leaving local economies with few resources. take advantage of their arrival.
And even if Southeast Asian countries avoid the additional tariffs or U.S. trade restrictions that many fear, they could still face the 10 to 20 percent levy that Trump has proposed imposing on all imports. American at all levels.
Elms says it’s also unclear to what extent what Trump said about tariffs will actually be implemented, or how quickly, making it all the more difficult to decide which companies will be confronted about whether they want to leave China.
Some of them will “dust off” the relocation plans they put aside after Trump left office in 2021 to take a fresh look now that he returns to the White House, she said.
“Whether they will execute them is, I think, an open question,” she added. “There are so many factors that matter, but there is a reason why companies are so heavily established in China, and that is because China continues to have a speed and scale that it is difficult to ‘equal elsewhere.’
Rather than move, Elms said some of these companies may end up choosing to absorb higher tariffs, if they can, or focus on markets other than the United States.
While it could provide a boost to regional trade in Asia, Aat and others worry it could flood Southeast Asia with cheap Chinese goods at the expense of local producers.
The three experts believe that Trump’s harsh words on tariffs ultimately bring more peril than promise for countries in the region.
“In the short term, of course, they will benefit from massive offshoring, if this offshoring increases,” Menon said. “But ultimately, as these things settle down, it’s not going to be very beneficial.”
voanews