Trump's Trade Deals in Southeast Asia: A Risky Bid to Upend Global Supply Chains

President Trump's latest trade deals in Southeast Asia are a high-stakes game of economic geopolitics, designed to constrain rivals and shape the geography of global production. The deals come with punitive tariffs to choke off China's ability to route exports through third countries, posing significant risks to supply chains, foreign investment, and global trade law. As trade economist Adil Nakhuda explains, the region's economies are heavily reliant on Chinese intermediate goods for assembly operations, with most finished goods destined for the US and China.

Key Takeaways:

• The US has secured total market access and a zero-tariff rate from Hanoi in exchange for a 20% duty on Vietnamese exports, with punitive tariffs on goods transshipped through Vietnam.
• Washington's tariff strategy aims to lock in bilateral benefits for the US while choking off Beijing's regional export channels, targeting transshipped goods with additional tariffs of 40%.
• The 'China Plus One' strategy, which has drawn billions in foreign direct investment from China, relies on integrating Chinese intermediate goods into low-cost final assembly in Southeast Asian countries.
• The World Trade Organisation has warned that punitive tariffs on transshipped goods are inherently disruptive and could significantly impact the export-driven growth model of Southeast Asian economies.
• Transshipment has contributed to the rise in China's exports to the region, but the bigger driver is structural change: companies relocating production to lower-cost assembly hubs like Vietnam and Indonesia.
• Foreign-invested enterprises account for over 70% of Vietnam's goods exports, using the country as an export platform to the US market.
• Washington's transshipment tariffs could severely undermine Vietnam's role as a low-cost gateway to the US market, forcing a rethink of supply chain strategies across the region.

Statistics:

• The share of Chinese content in Vietnam's exports to the US rose from 9% in 2018 to around 30% in 2022.
• Chinese investment in Vietnam increased significantly in the last five years, with Vietnam emerging as a key hub for Chinese exports to the US.
• Thailand's Chinese exports to Thailand and US imports have grown at over 10% annually since 2018, but its overall trade volumes are still smaller than Vietnam's.
• Punitive tariffs on transshipped goods are inherently disruptive, with the World Trade Organisation warning of significant impacts on export-driven growth models.
• Foreign-invested enterprises account for over 70% of Vietnam's goods exports, using the country as an export platform to the US market.

Sources:

• Adil Nakhuda, a Karachi-based trade economist
• World Trade Organisation reports on trade law and transshipment
• International trade data from various sources, including the US Census Bureau and the World Trade Organisation
• News articles and trade reports from reputable sources, including the Financial Times and Bloomberg