Clarity needed: Trump at Joint Base Andrews in Maryland. Vietnam, Thailand and Malaysia have taken steps to address Trump’s concerns, increasing scrutiny of trade that passes through their ports and imposing harsh penalties on trans-shippers — AFP
WASHINGTON: President Donald Trump’s recent flurry of trade deals have given Asian exporters some clarity on tariffs, but missing are key details on how to avoid punitive rates that target China’s supply chains.
Trump unveiled tariffs of 20% for Vietnam and 19% for Indonesia and the Philippines, signalling those are the levels the United States will likely settle on for most of South-East Asia, a region that ships US$352bil worth of goods annually to the United States.
He’s also threatened to rocket rates up to 40% for products deemed to be transshipped, or re-routed, through those countries – a move largely directed at curbing Chinese goods circumventing higher US tariffs.
But still unclear to manufacturers is how the United States will calculate and apply local-content requirements, key to how it will determine what constitutes transshipped goods. South-East Asian nations are highly reliant on Chinese components and raw materials, and US firms that source from the region would bear the extra tariff damage.
That’s left companies, investors and economists facing several unanswered questions about Trump’s tariffs that appear aimed at squeezing out Chinese content, according to Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore.
“Is that raw materials? All raw materials? Above a certain percentage?” she said. “How about parts? What about labour or services? What about investment?”
In an agreement with Indonesia last week, the White House said the two countries would negotiate “rules of origin” to ensure a third country wouldn’t benefit.
The deal with Vietnam earlier this month outlined a higher 40% tariff rate for transshipped goods.
And Thai officials, who have yet to secure a deal, detailed that they likely need to boost local content in exports to the United States.
The Trump administration isn’t providing much clarity on the matter right now.
US officials are still working out details with trading partners and looking at value-based local content requirements, to ensure exports are more than just assembled imported parts, according to a person familiar with the matter, who didn’t want to be identified discussing private talks.
A senior Trump administration official also said last week that details on the approach to transshipment are expected to be released before Aug 1, the deadline for when higher US tariffs kick in.
Some factories are already adjusting their supply chains to comply with rules that will require more locally-made components in production.
For most of South-East Asia, reducing the amount of Chinese-made components in manufacturing will require a complete overhaul of their supply chains.
Estimates from Eurasia Group show that Chinese components make up about 60% to 70% of exports from South-East Asia – primarily industrial inputs that go into manufacturing assembly.
About 15% of the region’s exports now head to the United States, up about four percentage points from 2018.
Vietnam, Thailand and Malaysia have all taken steps this year to address Trump’s concerns, increasing scrutiny of trade that passes through their ports including new rule-of-origin policies that centralise processing and imposing harsh penalties on transshippers.
Developing nations may still struggle to enforce Trump’s rules or comply with the rules if it means going up against China, their largest trading partner and geopolitical partner.
“The reality is it’s not enforceable at all,” said Dan Wang, China director at Eurasia Group.
“Chinese companies have all kinds of ways to get around it and those other countries have no incentive to enforce those measures, or capacity to collect the data and determine local content.” — Bloomberg
