How will Trump’s tariffs affect ASEAN

Photo: Gunawan Kartapranata/CC BY-SA 3.0
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The world is on the edge of a trade war after Trump announced steep tariffs on steel and aluminium. How can ASEAN protect its economies?

Editorial

Donald Trump’s tariffs have put steel and aluminium exporting nations on edge. His proposals put a 25% tariff on steel imports to the US and a 10% tariff on aluminium. Trump has granted temporary exemptions to some countries. But many steel and aluminium exporting nations are concerned.

Beijing is considering its own retaliatory tariffs, as are Mexico and Brazil. The EU also announced its own countermeasures. These retaliatory measures could plunge the whole world into a trade war.

Photo by Gage Skidmore, Creative Commons Licensing

The tariffs will prompt global steel exporters to look elsewhere for buyers

China makes up about 2.9% of US steel imports. This is just over 1 million tonnes of steel. The tariffs will put US$60 million worth of tariffs on imported Chinese products. Chinese producers will look to ASEAN for buyers to replace US buyers.

Roberto Cola, vice president of the ASEAN Iron and Steel Council, believes this will cause a surplus in the region. He said, “there will be excess supply in the region and prices will drop, which will be good for consumers.”

This will be good news for countries like Indonesia and the Philippines. Both have embarked on ambitious infrastructure drives. Cheaper steel and aluminium could mean significant savings on infrastructure projects.

But an international trade war could harm ASEAN’s export economies

Cheaper steel and aluminium will be welcomed. But a wider trade war could spell disaster for ASEAN exports. China has already proposed retaliatory measures. Beijing announced tariffs on 128 US products. The proposals would impose an extra US$3 billion worth of tariffs on US technology imports.

This tit-for-tat kind of trade war is precisely what ASEAN does not want. Beijing’s proposed retaliatory tariffs are at an early stage. But if it imposes blanket tariffs in the same way Trump did, several ASEAN nations will be affected.

Filipino electronics exports and Indonesian mining exports could suffer. Exports account for 71% of Malaysia’s economy. Tariff introductions could see hefty import costs added to their distribution processes. If exports decline, it would have a catastrophic effect on the national economy.

Closer economic integration is the only way to safeguard against a trade war

The only way to stay above a trade war and protect exports is through economic integration. Free trade agreements (FTAs) will preserve tariff-free trade with foreign markets. ASEAN nations will avoid paying steep international tariffs by negotiating more FTAs.

Singapore, for example, should be in a relatively strong position to avoid the fallout of a trade war. It is part of the finished Trans-Pacific Partnership (TPP) agreement. It is also part of the Regional Comprehensive Economic Partnership (RCEP) negotiations.

There are opportunities to negotiate FTAs during this period of uncertainty

There is an advantage in this uncertain time. There are opportunities to push forward with FTA negotiations. Canada and the EU have both expressed an interest in swiftly progressing with FTA talks. Both currently have temporary exemption from Trump’s tariffs. However, they may be hit by retaliatory tariffs from China and other countries.

ASEAN can capitalise on the uncertainty to swiftly conclude these FTA negotiations. Once completed, ASEAN will be well-place to avoid getting caught in the crossfire of a trade war. It will have strong trade partners and enjoy tariff-free trade with large markets. It may not be enough to deflect all of the damage. But it should protect the bloc from the worst of it.