Effects of higher US tariffs and responses from ASEAN
ASEAN governments lack the tools to negotiate lower tariffs with the US. Higher tariffs, if imposed, will remain in place.
The ‘Liberation Day’ tariffs announced by US President Trump have been postponed. But they will have significant consequences for ASEAN if they are eventually implemented. Despite the extreme uncertainty, high fixed-asset investment costs, and the region’s strong labour cost advantages, we doubt ASEAN supply chains can adjust quickly.
Some businesses could soften the blow from higher tariffs by shuffling production from higher-tariffed locations to lower ones. But not all businesses have diversified production bases and relocations costs are enormous. Also damaging is the hit from extreme trade policy uncertainty, which will lower business investment even if tariff hikes are eventually reduced or scrapped.
A reordering of shipping routes within ASEAN is likely. Lower-tariffed economies with transhipment capabilities could benefit. That said, a key risk is the potential for disruption to supply chains. In the medium term, we doubt companies operating in ASEAN will reshore to the US.
ASEAN governments lack the tools to negotiate lower tariffs with the US. Their ability to implement retaliatory tariffs is also limited. Higher tariffs, if imposed, will remain in place.