Vietnam, Thailand Among Asian Exporters at Risk of US Tariffs

Business people around the world are closely watching developments in Washington as President Donald Trump launches tariffs to dramatically restructure America’s trade policies.

The first round of tariffs were imposed on Tuesday against China, Canada and Mexico, while trade officials in the US make deeper assessments on trade in commodities such as steel, copper, chips and a range of other criteria, such as, in the case of South Korea, the cost of running huge US bases and providing military protection.

Exports form China have been hit with 20% tariffs for Beijing’s alleged inaction to stem the flow of drugs used to make fentanyl, the opioid that has killed many thousands of Americans, while exports from Canada and Mexico now face a 25% duty. They have responded in kind, but are still hoping to find ways to reduce the size of the levies.

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Leaders from Japan and India have flown into DC to meet the new President to get a head start – to discuss a rejig of trade deals and bargain with the US’s “transactional” new head of state, who seems eager to exercise the great power and leverage now within his grasp.

The strategy and real reasons behind some of these moves are still being pondered. Meanwhile, Asian nations – allies and foes alike – are wondering: Who will be next? And what can we do to avoid or reduce tariffs the US may want to impose?

Tariffs ‘open a door to crony capitalism’

Clearly there are different agendas for neighbours, allies and rivals. So, it was no surprise to hear today that already there is talk of 30-day exemptions for a handful of carmakers in America’s neighbouring countries: General Motors, Ford and Stellantis.

That decision has put the spotlight on the exemption process, which Trump is said to have used extensively during his first term.

“The exemption process is opaque and conceivably could be influenced by political favoritism,” the Peterson Institute for International Economics explained in a 2019 report on the tariffs imposed after Trump took office. “Decisions to grant or deny exemptions are not explained, yet outcomes give real money to the lucky applicants and take real money from the unlucky.”

A commentary by Rick Newman, a senior columnist for Yahoo, said the exemption process confounded company executives at that time and noted that “Trump’s tariffs open the door to crony capitalism“.

The same tariff exemption may be open to foreign carmakers, he said, as the President’s press secretary Karoline Leavitt said on Wednesday that Trump is “open to hearing about additional exemptions.”

But he wondered if “the real reason Trump may think ‘tariff’ is the “most beautiful word in the dictionary” is that it brings thousands of supplicants to his court, asking for mercy.”

Solutions needed

But the problem for manufacturers and exporters in Asia is they yearn for long-term solutions – much longer access to US markets.

Yet this is the path that companies such as TSMC, Toyota, Samsung and many other famous Asian brands in complex global supply chains have surely faced before. The US regime has just become another rent-seeker. All are in the crosshairs and the impacts will differ across the region.

Countries like Japan, India, Taiwan and South Korea have already talked about trade deals worth hundreds of billions of dollars.

But even nations such as Vietnam and Thailand are badly exposed to the US tariff threat due to their high export-to-GDP ratios with the United States, as this graph by Reuters shows.

With Trump proposing tariffs targeting sectors such as semiconductors, pharmaceuticals, steel and aluminium, Nomura expects over a quarter of exports from South Korea, Japan, Malaysia, the Philippines and Taiwan could be affected, according to Reuters.

Malaysia, South Korea and Thailand are more tied to North American supply chains, making them vulnerable to US tariffs on Canada and Mexico.

In Malaysia, 0.59% of GDP is tied to trade that adds value to Canadian and Mexican exports to the US, the highest share among Asian economies, data shows.

Taiwan and Vietnam are more exposed to China’s exports to the US, meaning they could be heavily impacted by US-China trade tensions.

While Trump’s tariffs target the three countries to address trade imbalances, nations with the highest trade surpluses with the US are also seen as at risk of further tariffs. In Asia, China, Vietnam, Japan, and Taiwan have the largest trade surpluses with the US, according to a recent US Treasury report.

Some Asian economies also face risks from reciprocal tariffs, as President Trump directs plans for counter-tariffs on countries that impose higher tariffs on US imports than those the US levies.

“If the current US administration is deciding on reciprocal tariffs based on the effective tariff differential alone, it is likely that, within Asia, India, Thailand, and South Korea would be most at risk and could face additional tariffs of around 5ppts,” Oxford Economics said in a report.