US plans to impose 100 per cent of tariffs on imported chips are a heavy blow to South-East Asia’s chip industry and could push the region closer to China, according to observers.
US President Donald Trump announced the duties on semiconductors and chips on Wednesday, saying that only companies that were “building in the United States” were exempt.
It is unclear just how much of a US manufacturing presence companies would need to have to qualify for tariff exemptions or reductions, or whether the policy will differentiate between the more advanced AI chips and legacy semiconductors.
South-East Asia, led by Singapore and Malaysia, has emerged a key manufacturing hub for legacy semiconductors, integrated circuits that use older technology.
Vietnam, which has stepped up investment in semiconductor production and workforce training in recent years, is also emerging as a key player in the global supply chain.
With the region already struggling to absorb other tariffs imposed as part of Trump’s “America first” policy, the latest US duties – as well as Washington’s policy unpredictability – could open the way for China, analysts said.
Antonio Fatas, professor of economics at INSEAD business school, said Trump’s tariffs on imported chips showed that the American leader was still testing the limits of economic policies, even though they were damaging global growth and adding to inflation in the United States.
“For South-East Asian countries, this is a confirmation that exporting to the US has become much harder, that the US is not a reliable partner and that you cannot trust it even if you manage to sign a deal,” he said.
Fatas said the US had “clearly become an unreliable partner” and would become more isolated, and that meant that countries – and firms – would try to find opportunities and build trade relations with others.
“Countries like China where saving rates are too high should step in and provide that impetus. If they did, we would see a regionalisation of trade flows as they move away from the US. But before we get there, there will be pain,” he said.
Since Trump returned to the White House in January, Beijing has ramped up its charm offensive to South-East Asia, a region that is now a priority for China’s neighbourhood diplomacy to offset its own pressure from the US.
In April, Chinese President Xi Jinping visited Vietnam, Malaysia and Cambodia, and in May, Chinese Premier Li Qiang also paid an official visit in Indonesia and Malaysia.
Beijing also rolled out red carpet for Singaporean Prime Minister Lawrence Wong in June, when Xi urged Singapore to join China on “right side of history” and to promote an “equal multipolar world”.
City University of Hong Kong professor Julien Chaisse noted that China’s most attractive feature at the moment was its sense of certainty – something Beijing was deliberately projecting to strengthen its long-term appeal to Asean.
“China is quietly positioning itself as the more predictable option. It is not offering perfection, but it is offering clarity ... And that is exactly the kind of language that appeals to Asean leaders who are trying to shield their economies from policy shocks,” Chaisse said, referring to the Association of Southeast Asian Nations.
And while Southeast Asian countries had been “cautious by nature” about taking sides between China and the US, there was a limit.
“If one partner keeps disrupting the system while the other offers to support it, the choice starts to become less about politics and more about survival,” he said.
However, there is no sign that Asean is about to give up its neutrality, according to Dylan Loh, assistant professor in the Public Policy and Global Affairs Programme at Singapore’s Nanyang Technological University.
“US tariff pressure does present an opportunity for China to strengthen its economic ties in the region, insofar as China is positioning itself as a reliable partner through trade agreements and investment. That said, this alone will not portend any major shift or alignment with China – we do not see clear evidence of this,” Loh said.
He said countries in the region continue with “a mix of hedging, balancing, deeper Asean integration, and diversification of their ties [with other countries] while maintaining their relationship with the US and China as best as possible”.
Still, countries in the region will have to take the semiconductor tariff pain, at least for now, according to Xu Tianchen, senior China economist at the Economist Intelligence Unit.
“There is no doubt that Southeast Asia will be the first in line to be affected. If Trump expands tariffs to consumer goods such as mobile phones containing foreign chips, the impact will be even greater. This is because Southeast Asia is an important production base for consumer electronics,” Xu said.
Like China, South-East Asia’s position in the global semiconductor industry is largely cemented by its strength in cost-efficient operations, with very limited access to advanced-node processor chips.
The 100 per cent US tariffs would erode its edge for China as a low-tariff launch pad for chip exports to the US.
“China was selling low-end semiconductors elsewhere, but in a way, packing in Southeast Asia, especially in Malaysia. Now, it would not be able to do that with the 100 per cent tariffs,” said Alicia García-Herrero, chief economist for Asia-Pacific at French investment bank Natixis. -- SOUTH CHINA MORNING POST
