An obstacle in negotiations is that the White House is pushing for less Asean trade with China as the price for better trade terms with the US. - Reuters
WASHINGTON/SINGAPORE/KUALA LUMPUR/BANGKOK/MANILA: It took one weekend in Geneva for US President Donald Trump to roll back what has been seen till now as the raison d’etre of his presidency.
From May 14, gone are the 145 per cent tariffs on goods from China, which are now down to 30 per cent, composed of 10 per cent baseline tariffs plus 20 per cent punitive levies aimed at curbing the inflow of precursors to make the synthetic opioid fentanyl, which is causing tens of thousands of deaths in the US.
Apart from these, some sector-specific tariffs remain.
The reversal on China invites the obvious question: What about the rest of the world, especially South-East Asia where reciprocal tariffs range from 49 per cent on Cambodia to 17 per cent on the Philippines to 10 per cent on free-trade agreement partner Singapore?
A rare joint US-China statement on Monday (May 12), issued after two days of talks in Geneva, announced a dramatic lowering of tariffs while the US seeks a “a long-lasting and durable trade deal” with China, to quote US Treasury Secretary Scott Bessent.
Also on May 14, Beijing will slash levies on American products from 125 per cent to 10 per cent.
The US decision to lower tariffs was largely seen as a victory for China. Many analysts said President Trump had blinked. Eurasia Group founder Ian Bremmer described it as his “biggest climbdown to date”. Others said China had stared down Trump’s tariffs and called his bluff.
The Americans suddenly don’t want to decouple anymore, Dr Bremmer said.
“Recognising they can’t trade at all with the present 145 per cent tariffs, they reached out to China to start negotiations.” The Chinese had shown no signs of picking up the phone, he noted.
Less excitement and controversy greeted Trump’s first trade deal, struck with the United Kingdom on May 8. While the baseline 10 per cent tariffs on all goods entering the US remained, levies on some UK exports, including cars, steel and aluminium, were reduced.
There are a few takeaways from the two deals that conceivably could apply to other negotiations, said former US deputy trade representative Wendy Cutler, who is now the vice president at the Asia Society Policy Institute.
“These deals are light on hard commitments and focus more on setting the stage for future talks,” she said.
“They both suggest that the US is willing to be pragmatic and flexible. However, they cause little doubt that the 10 per cent universal tariff is here to stay,” she told The Straits Times.
The two deals cut both ways for Asean states trying to understand Washington’s stance, said Gregory Poling who directs the South-East Asia Programme at the Center for Strategic and International Studies (CSIS).
“On the one hand, it shows that the administration is increasingly desperate to announce deals, even if they are temporary and lack substance.
“But on the other hand, there doesn’t appear to be a plan, so it is unclear what exactly the White House wants,” he told ST.
That could be particularly vexing for a country like Singapore, he said, which already runs a trade deficit with the US and has virtually no trade barriers courtesy of the two-decades-old FTA.
A trade expert closely following the ongoing negotiations between the White House and several Asean nations said there was not too much to take away.
“US industry reactions to the UK deal were not great. And the deal with China might make other governments think that China’s retaliation to US tariffs was helpful,” said the expert who did not want to be named.
“While I assume other governments are watching the UK and China, it’s hard to see if any lessons can be learned,” he said.
Negotiations are proceeding apace as the clock ticks for the first Asean nation to strike a deal with the Trump administration. Vietnam and Malaysia, which face 46 per cent and 24 per cent tariffs respectively, appear especially galvanised.
At a May 5 special Malaysian parliament sitting on tariffs, Prime Minister Anwar Ibrahim said strategic purchases from the US were under consideration. Malaysia Airlines, he said, could be expediting its procurement of the order placed last year for 30 Boeing aircraft, with an option for 30 more.
Other deals could be on rare earths, abundantly found in Malaysia, which the US is keen to buy.
A gas deal could also be on the table, even though Malaysia is a net exporter of gas. The country could buy US gas for domestic use and export more of its local production not only to the existing big buyer Japan but also to China and South Korea.
Sources told ST that the Malaysian Trade and Industry Minister Zafrul Abdul Aziz’s delegation had returned buoyed after meetings in Washington DC with Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer in late April.
Vietnam, which has been in Trump’s crosshairs for its enormous US$124 billion (S$161.6 billion) trade surplus with the US, has signalled willingness to make significant concessions. These include lowering tariffs on American goods and increasing US imports. It also wants to be recognised as a market economy by the US, which could be the basis for lower tariffs.
But progress has wobbled a little, said Marc Mealy, executive vice president and chief policy officer at the US-Asean Business Council in Washington DC.
“One of the proposals that the government of Vietnam put on the table, to help make the trade flows more balanced, was to negotiate a comprehensive bilateral free-trade agreement between the two governments,” Mealy told ST.
“We understand that the US declined the idea of negotiating a bilateral FTA.”
Vietnam, too, is inclined to make purchases like Boeing planes, gas and allowing Starlink, owned by Trump’s close associate Elon Musk, to sell its satellite internet services.
A more sensitive purchase might be a possible deal to buy F-16 fighter jets — as many as 24, according to US media. But Hanoi would have to tread carefully, given that China would almost certainly see that as upsetting the strategic balance in the South China Sea.
On the other hand, this is exactly the kind of big-ticket item that would be required to make any sort of dent into the US-Vietnam trade imbalance.
The Philippines sent Special Assistant to the President for Investment and Economic Affairs Secretary Frederick Go to meet Greer on May 2. Talking points included the impact of tariffs on key Philippine exports like semiconductors, garments and coconut products.
With a US$4.8 billion trade surplus and strategic military ties in play, Manila is offering its own tariffs on American goods. Go described the talks as “very productive”.
The pressure to choose
An obstacle in negotiations, according to American media reports, is that the White House is pushing for less Asean trade with China as the price for better trade terms with the US.
The office of USTR Greer did not respond to a request to comment on the matter.
But there is little doubt that Washington expects trade partners in Asean to cooperate with efforts to curb China’s economic influence in a region heavily reliant on Chinese raw materials, components or intermediate goods.
In particular, the US is vocal about concerns that Chinese goods are being rerouted through Asean countries to bypass US tariffs on China.
Cutler said the US would undoubtedly ask countries to strengthen their transshipment regimes and come down hard on circumvention activities.
“There may be other US requests trying to rein in the investments and exports by Chinese companies in their countries,” she said.
“Trading partners will need to walk a fine line by being responsive to US requests but not going so far as to draw Beijing’s ire.”
Mealy said Asean nations have been keen to offer assurances. Vietnam, for instance, has pledged to address the transshipment issue.
“Some Asean governments have sought to address this by implementing more stringent ‘made in’ certification requirements to protect their ‘trusted trade partner’ brands,” Mealy said.
“Others have also issued public policy statements rejecting investors seeking to circumvent established trade rules,” he said.
The Malaysian trade delegation said they sensed that they were well understood by Washington.
“They know that even if they ask Malaysia to decouple from China, we can’t. A lot of our economy is intermediate and we need to buy from everyone to manufacture stuff and then sell to everyone,” said a top economic official, who cannot be named due to the confidential nature of the trade talks.
And Malaysia has anticipated the Trump administration demands. Namely, curbing relabelling, reducing the deficit and inserting technological safeguards, i.e. making sure that Malaysia does not use Chinese spying tech and sell it in products that end up in the US.
Lutnick had indicated to Zafrul that if Malaysian exports had inputs from China, these would be taxed.
“So it’s up to us to optimise our supply chain and ensure China content isn’t sold to the US. Or, if it is, then it will be low enough that the margins make sense. Basically, business decisions,” said another source who is privy to the talks.
Could the new pause in the US-China trade war presage an easing of pressure on Asean nations?
Poling, the CSIS analyst, said the timeline was tricky.
“The pressure might ease for 90 days, but if talks fall apart, which is entirely possible, then the administration could lash out at anyone it perceives as deepening ties with China at the US’s expense,” he said.
“Because the 90-day pause on everyone else’s tariffs runs out nearly a month and a half before the 90-day pause on China tariffs. So countries presumably have to try and cut deals without any clarity on what will happen between Washington and Beijing.”
In the meantime, a pushback against President Trump’s tariffs is building up in Congress, where a House resolution seeking to claw back the authority to levy tariffs has been tabled. According to the constitution, the Congress and not the President holds the purse-strings.
“I don’t think it’s in our interest to put the South-East Asian nations in a position where they have to pick one or the other,” Representative Ami Bera, ranking member of the House Asean caucus, told ST.
He said he had discussed the issues in recently held meetings with Asean ambassadors and with American companies with investments in South-East Asia.
“The President is prioritising the Indo-Pacific -- that’s certainly a positive. The negatives are the uncertainty and not knowing what to expect. Our advice has been to give it some time, start negotiations and see where they go.”
The push for an exclusive trade relationship comes equally from China.
While Asean’s Jakarta-based ambassadors were on a tour of Shenzhen, Beijing and Hong Kong at China’s invitation in April, a senior Chinese foreign ministry official urged Asean to join forces with China against US tariffs.
China will not dump goods in the region, he said.
Asean diplomats listened silently, sceptical of China’s promises.
One official noted that if Hong Kong, despite its advantages, hasn’t thrived under Chinese support, Asean countries have little reason to trust Beijing’s assurances.
That said, Asean nations are ready to take the next step in their FTA with China. They are expected to announce an upgrade to include a digital trade chapter during a meeting at the end of May.
In Washington, as the White House’s self-imposed July 6 deadline to seal trade deals ticks closer, Trump has ruled out any extensions.
But in the Trump world, nothing is set in stone. - The Straits Times/ANN
