[SINGAPORE] More Asean countries may soon be pulled deeper into the fallout from US President Donald Trump’s plans to introduce reciprocal tariffs, said Maybank in a March 21 report. 

The report said that while Vietnam has often been cited as the most vulnerable to US trade policies due to its large trade surplus with the US, Trump’s latest plans are likely to bring substantial slowdown to Indonesia, the Philippines, Malaysia and Thailand.  Trump’s reciprocal tariffs, which will be customised to individual US trading partners, will be based on five components: value-added taxes (VAT), non-tariff barriers, tariffs imposed on US products, exchange rates and any other unfair practices. The report noted that previous foreign-direct-investment momentum to Asean may slow significantly if the tariff gap between the region and China becomes narrower. The threat of tariffs may also incline multinational corporations to take more caution towards fresh investments in Asean, the report added. 

Maybank noted that reciprocal tariffs are based on five different areas – VATs, non-tariff barriers, tariffs imposed on US products, exchange rates and any other unfair practices. “(That) could place Indonesia, Philippines, Thailand and Malaysia in the line of fire, not just Vietnam,” said the bank.

Reciprocal taxes will take into account exchange rates – and Vietnam and Singapore are currently on the US Treasury currency manipulation watch-list, Maybank noted.

Based on its calculation using these components – tariffs charged on US imports plus VAT – the report estimates that Indonesia and Philippines could be hit with the largest reciprocal tariffs, with their present totals standing at 16.2 per cent and 15.3 per cent, respectively. 

Malaysia and Singapore, at 9.1 per cent and 9 per cent, respectively, would be less vulnerable among the Asean countries by reciprocal tariffs. 

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If the US sets reciprocal tariffs solely based on the headline trade-weighted average tariff rate imposed on US goods, Cambodia (12.5 per cent) and Thailand (6.2 per cent) could be most at risk as they charge the most on US goods, said Maybank.

Non-tariff barriers are most common in the Philippines, Cambodia and Indonesia, the report said. These include technical regulations, customs rules and license fees, such as Indonesia’s effort to ban iPhone 16 sales in the country last October.

Yet, further tariffs are likely to threaten the region’s key exports. Trump’s recent comments have also highlighted his intention to impose sector-specific import tariffs on the semiconductor, pharmaceuticals, autos and electronics sectors. 

Semiconductor tariffs likely to weaken Asean electronics

The report said that 25 per cent tariffs on semiconductors, as well as export controls on advanced artificial intelligence (AI) chips, are likely to weaken the Asean electronics sector, with Malaysia and Singapore being the most vulnerable. Malaysia is the largest absolute exporter of semiconductor products to the US, with a value of more than US$10 billion in 2023, making up 12 per cent of its total semiconductor exports and 3.3 per cent of all exports. 

While Singapore, a major player in chip fabrication, exports most of its chips within Asia, these are often sent for processing in the US, the report said. An overall decline in chip demand will also likely impact Singapore’s significant semiconductor equipment segment.  A 25 per cent tariff on pharmaceuticals will also have some impact on Singapore, which is the only major pharmaceuticals producer in Asean, exporting 7.4 per cent of its pharmaceutical products to the US in 2023, the report added.

Chinese demand

Following additional duties of 20 per cent imposed on Chinese goods this year, the effective applied tariff rate imposed by the US on China has reached a substantial 31.7 per cent, the report said. This far exceeds any tariff rate on Asean countries imposed by the US, which stand between eight per cent (Cambodia) and zero (Singapore).

The diversion of US demand from China to alternative locations in Asean may continue to give regional exporters advantages, the report noted. However, it warned that these diversions may be short-lived if Trump’s reciprocal tariffs cause the Asean-China tariff gap to narrow.

Yet, retaliatory tariffs imposed by China on US products are likely to increase Chinese demand for Asean products, especially food and agricultural products.

The report noted that China’s latest tranche of retaliatory tariffs in March focused on imposing duties of 10 to 15 per cent on products such as chicken, corn, pork, beef and seafood.

A similar diversion of Chinese demand that was witnessed during Trump’s first term could be observed, the report said. Vietnam’s seafood exports to China doubled in value from 2016 to 2019, while Thailand’s poultry exports to China doubled each year from 2018 to 2020.

“The trade dispute has arguably led to lasting gains in Asean exporters’ share of the Chinese market,” the report added.