Will Southeast Asia Help Trump Build a Wall Against Chinese Exports?

President Donald Trump has vowed to enlist a wide range of partner countries to isolate China by reducing their dependence on Chinese exports, altering their supply chains to operate with Chinese influence in absentia, and placing their own tariffs on Chinese-made goods. Most recently, the president has also begun pressuring these partners to put an end to the practice of transshipment, whereby Chinese factories ship fully made goods or parts to an intermediate destination before exporting them to the United States to avoid tariffs.

Trump has pushed this idea of isolation with Europe, Northeast Asia, and other parts of the world. But the White House has most aggressively promoted this strategy in Southeast Asia, where a sizable amount of transshipment has occurred in recent years, in some part because the United States encouraged companies to move operations out of China and into other countries.

“The Trump administration is saying, ‘We need to see strategic decoupling if you are going to be a trade partner with the U.S.,” Steve Okun, chief executive of APAC Advisors, a geopolitical consulting firm, told the New York Times.

In practice, the White House is angling to use Southeast Asian nations as a major part of its economic “wall” against Chinese exports. This idea has attracted renewed attention after the apparent finalization of a U.S.-Vietnam trade deal on July 2. President Trump unilaterally announced that negotiations had concluded through a post on Truth Social, claiming that U.S. tariffs on Vietnamese goods would be cut down from a proposed 46 percent to 20 percent. At the same time, the United States would apply 40 percent tariffs on any transshipped exported from Vietnam, with most of those items presumably coming from China.

Dismantling Beijing’s ability to avoid economic obstacles through transshipping is clearly the White House’s most important economic goal in Southeast Asia, just as convincing more powerful partners like Japan and South Korea to reduce trade with China remains a prime objective in Northeast Asia. As Washington seeks to isolate Beijing economically, it has made clear that nations that will not clearly align themselves with the United States–a position anathema to most of Southeast Asia, which prefers to balance among big powers–will suffer tangible economic consequences.

Ahead of his initial July 9 deadline to revise various terms of trade put forth on “Liberation Day,” the White House has threatened a number of Southeast Asian nations with higher tariffs. Without negotiating new deals, these rates will come into effect for Indonesia, Malaysia, the Philippines, and Thailand, among others, on August 1.

Yet an impending deal with Vietnam, which was in a unique position vis-à-vis the United States, does not portend success across the region. As Mr. Kurlantzick has noted, beyond the five small economies in Southeast Asia (Brunei, Cambodia, Laos, Myanmar, and Timor-Leste), Vietnam stood out as the economy in the region most vulnerable to pressure from the Trump administration. Vietnam has built one of the biggest trade surpluses with the United States of any country in the world while remaining a lower-middle income nation, lacking the type of economic tools or range of alliances available to actors like the European Union or Japan to push back against the threat of reciprocal tariffs.

And the unpredictability of making deals with the White House will likely discourage other regional partners from copying Vietnam’s approach. The figures of the deal Trump posted on social media did not accord with what Vietnamese officials thought they had agreed upon. Most recently, Trump’s post about the tariff rates of the deal took Vietnamese leadership by surprise–the reduced tariff rate agreed upon by Vietnam’s top leader Tô Lâm was reportedly closer to 10 percent than 20 percent. It is also possible that Vietnamese leaders did not agree to the tariff on transshipped goods. A statement published by Vietnam’s state news outlet marked the occasion of a personal call between the U.S. and Vietnamese leaders on the same day as Trump’s post, but made no mention of special tariffs on transshipped goods. Neither Washington nor Hanoi have released any paperwork confirming the exact terms of trade going forward, and it remains unclear exactly when these rates–however high they may ultimately be–will go into effect.

This unpredictability matters. Asian leaders were left in the dark about Washington’s plans to re-up tariff rates. Members of Thailand’s leadership who visited the United States to negotiate trade terms last week have expressed exasperation with the back-and-forth state of proceedings. Some media outlets in the region describe the Trump administration’s strategy as unreliable, characterized by “shifting goal posts” that partners have routinely tried to meet without success. Meanwhile, Malaysian Prime Minister Anwar Ibrahim–probably the regional leader with the most experience in Washington–has urged other Southeast Asian states to enhance interregional trade. Beyond characterizing the United States as an undependable partner, Anwar’s comments implicitly suggest that the region should band together like Europe has rather than continue to deal with Washington on an individual basis.

Still, the region remains heavily dependent on trade with China. Though public sentiment was trending against the United States even before the current administration took office, countries were still actively seeking a broader range of export partners. The new administration does not seem to have improved regional public views of the United States, creating worrying consequences for its status as a reliable trading partner in the region going forward.

China became the biggest trading partner of Southeast Asia sixteen years ago, and today China-Southeast Asia annual trade has surpassed a trillion dollars–more than Southeast Asia’s trade with the United States and European Union combined, according to Marcus Loh of The Diplomat. And China, along with other major regional powers like Japan and South Korea, has helped facilitate expansive multilateral trade deals in the region, a feat which the United States–throughout the Obama, Trump 1, Biden, and Trump 2 administrations–has so far failed to accomplish.

As Mr. Kurlantzick has noted, China is trying to take advantage of regional concerns about U.S. policy–which also includes the drawdown of USAID in Southeast Asia, where it was a major donor–by increasing proposed aid and investment to Southeast Asian states, proposing new trade routes, and portraying itself as more reliable now than the United States, among other steps.  

Studies conducted by the ISEAS-Yusof Ishak Institute in Singapore show that the region, with a few exceptions, remains extremely worried about China’s strategic ambitions and claims over the South China Sea, and does not trust Beijing on many economic issues despite massive bilateral trade. (China often resorts to economic coercion against countries when it disapproves of their policies.) Many countries approve of the United States’ regional security presence, which is the part of the Trump administration’s defense posture most similar to that of his predecessor.  But even that security posture will, to some extent, be undermined if the White House fails to convince the region to be part of its wall–or puts on tariffs so high that regional states have no choice but to gravitate towards China and other powers.