Trump Tariffs Hit Asia

Donald Trump has begun the next chapter in the long-signalled process of imposing tariffs on his country’s trade partners across Asia.

US allies Japan and South Korea were among the nations receiving letters from the White House, notifying them of the updated terms of trade with Washington due to kick in next month.

Both now face a 25% import tariff, and they may be feeling relieved it was only a small increase.

Myanmar and Lao PDR face a 40% trade tariff.  Thailand and Cambodia take 36% ; Bangladesh 35%; Indonesia 32% and 25% for Malaysia and Kazakhstan.

Trump’s letter also warned against any tariff retaliation, threatening a further 25% hike if the US faced any further tariffs from Asia.

Trump also suggested a strategy for Asian countries to avoid the tariff hikes, saying the tariffs could be “modified, upward or downward, depending on our relationship with your country,"

"If you wish to open your heretofore closed Trading Markets to the United States, and eliminate your Tariff, and Non Tariff, Policies and Trade Barriers, we will, perhaps, consider an adjustment to this letter," he added.

Analysts believe such adjustments could indeed be possible between now and August 1st, when tariffs are set to be applied. Re-negotiations would also help to lessen the impact of the tariffs on the US economy.

Stock markets in the US have dropped by nearly 1% following the tariff announcements

Asia : The deficit picture

According to the Office of the United States Trade Representative, Japanese goods exported to the US topped $US148.2 billion last year, while US goods products into Japan were worth $79.7 billion. The US has a $68.5 billion goods trade deficit with Japan.

South Korean goods exported to the U.S. reached $131.5 billion, while American goods exported to South Korea came in at $65.5 billion, and a subsequent $66 billion trade deficit for the US.

But the US has its biggest issue with China , where its trade deficit sits at nearly $300 billion in the last year.

Other significant deficits across Asia include $123.5 billion with Vietnam, $73.9 billion with Taiwan, and $45.7 billion with India.

Vietnam struck a special deal with the White House last week, with Vietnamese goods facing a 20% tariff into the US, and a 40% tariff on goods shipped via Vietnam – such as those from China. 

As the Trump tariffs roll out across Asia, the US is hoping that the resulting increase in the costs of foreign goods will encourage Americans to buy local, thus restoring jobs and increasing the tax take. Most economists see that scenario as somewhat rose-tinted, with many industries unable, or unwilling, to re-centre their production in the high-cost US economy.

Americans face higher prices, without any meaningful adjustments to the trade deficits, and at the same time Trump’s internal taxation and medical benefit changes also bring pressure on much of the US population. 

But what is happening is that the imposition of tariffs across Asia drives two increasing trends : a reduction of trade between China and the west, and a concurrent increase in trade between China and the Indo-Pacific.

While the US under Trump decided to pull out of the TPP (Trans-Pacific Partnership), China instead joined RCEP (Regional Comprehensive Economic Partnership), the world’s largest trade bloc.

ASEAN has vastly increased its trade with China, and while the US tariffs have hurt the Chinese economy, prompting a drop in demand, the Chinese  have reacted by investing more in automation, quality control, and branding to stay competitive despite higher costs. China has also looked to begin production domestically of products it once imported, especially in sectors like agriculture.

The trade ructions across Asia caused by the Trump tariffs could possibly assist the formation of a new global economic order, where a tariff-toting USA is no longer the preferred trade partner.

Banner Image : The east coast US port of Baltimore.

Asia Media Centre