How Asean and Asia can turn the tide against US tariffs

Photo: AFP

ASEAN and other Asian economic policymakers should bear in mind that the cost of President Donald Trump’s reciprocal tariffs on imports from scores of countries around the world will fall largely on consumers in the United States.

Despite the Trump administration’s claim of enforcing “reciprocal tariffs” to reclaim bargaining power, the data tells a different story. In 1940, the US accounted for around 40% of global trade. In 2022, that figure had dropped significantly with only 13% of global exports destined for the US. Today, roughly 87% of the world’s merchandise trade takes place outside the US.

Across 160 countries with available data, the US’ share of exports averages 11.4%, with a median of just 4.7%. For India, China, and Asean nations, the US accounts for only 18%, 16%, and 19% of exports, respectively.

Ironically, average import-weighted tariffs on US exports to these countries are already lower than the “reciprocal” tariffs now being proposed by the US. This suggests the “fair trade” argument is more a negotiating tactic than an economic strategy.

While the impulse to retaliate is natural – and sometimes politically necessary – it may not be the smartest move, especially for economies deeply integrated into global supply chains. Game theory tells us that tit-for-tat retaliation can stabilise cooperation in some situations, such as the Prisoner’s Dilemma.

But in this case, mutual escalation only deepens economic harm – the exception being selective trade protection measures such as the EU Cross Border Adjustment Mechanism (CBAM), which is a green growth strategy.

This is not to say that countries like Cambodia or Vietnam are powerless vis-à-vis the US. They have other tools beyond trade policy. For example, governments could tax the profits of US multinationals or introduce environmental levies on new US investments that fail to meet ESG (Environmental, Social, and Governance) standards.

Such strategies not only deter poor investment practices but also generate domestic revenue and promote sustainable development.

Still, not every country can shield itself from the fallout. The heavy concentration of global supply chains in Asia – particularly in electronics and automobiles – means disruptions will be felt substantially across Asean and East Asia. That said, tariffs disproportionately affect small businesses and consumers more than they do governments or large firms. So, retaliatory trade policies are not always the optimal response.

A better approach would be to remain calm and focus on strengthening regional integration and economic resilience.

Asean and Asian economies should prioritise reducing internal barriers to trade, enhancing regional cooperation, and investing in building resilient supply chains. The Covid-19 pandemic proved that Asian firms adapt quickly to shocks – often faster than governments. Now is the time to deepen Asean and East Asian economic integration not only in goods but also in services and digital trade.

World Bank and WTO data show that exports of green technologies and digitally delivered services are growing faster than any other trade segment.

Eria research suggests that mega trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), which address behind-the-border issues are particularly effective in promoting trade in services.

Governments should support next-generation reforms, such as supply chain resilience, green logistics, and digital public infrastructure, while companies must rethink their strategies to become more agile and sustainable.

Embracing low-carbon, circular models of production could not only reduce manufacturing costs but also open new market opportunities.

The US is now a prisoner of its own policies. A global trade war in the 1930s intensified the Great Depression, and history need not repeat itself. Investor confidence is fragile, and the best way forward is steady, sensible reform – not retaliation.

VENKATACHALAM ANBUMOZHI

Senior Research Fellow for Innovation

Economic Research Institute for Asean and East Asia (Eria)