Brace for impact – What should Southeast Asia businesses do to future-proof itself against U.S. tariffs?

The U.S. so-called “Liberation Day” tariff announcement has sent shockwaves to the world.

Southeast Asian (SEA) countries have not escaped the fate  – among hardest hit was Vietnam, slapped with a 46% tariff. Thailand and Malaysia were imposed with 36% and 24% tariffs respectively.

Even though President Trump subsequently announced a 90 day pause for all countries except China, we must not become complacent by this temporary respite.

It is clear that the US has now sent us back to the era of trade protectionism, and a global trade war is now happening. SEA countries and businesses must think strategically and take drastic actions to future-proof their economies and operations.

So what are SEA to do to brace for impact of the tariff measures, and what are the lessons for the future?

The best solution to mitigate immediate fallout in the short run is to seek diplomatic solutions and prioritize negotiation with the U.S. It is unrealistic to expect SEA economies to reduce reliance on exports, and they are too small to impose retaliatory measures in return.

In the long run however, SEA must consider that the US is no longer a major export destination for SEA goods so that SEA businesses must look for new, non-US markets. Naturally, China emerges as an attractive alternative, but SEA countries must be clear-eyed in pursuing closer trade ties – if anything, the tariff imposition should be a wake up call on over-reliance on a single market, and should not exchange one for the other.

A more comprehensive approach includes employing a diversification strategy and increasing efforts to expand to other markets such as the E.U., India and other emerging markets. This could be achieved by leveraging existing Free Trade Agreements (FTAs) including Comprehensive and Progress Agreement on Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP) to gain new market access.

SEA countries must also strengthen the ASEAN platform to negotiate new free trade agreements as a bloc, and to speak as a united voice in defending the global rules-based trade order.

Finally, SEA businesses must realise that the days of benefiting from the opportunism of the “China Plus One” strategy is over. SEA must reduce reliance on export-led growth, double down efforts to strengthen domestic markets, attract quality FDI that can help build a strong industrial base, as well as achieve greater self-sufficiency in supply-chains.

Trump’s actions in weaponizing trade policy has done profound damage to trust in the U.S., which has proven to have completely disregarded global rules and norms, and would even penalise its own allies.

There is an extremely small chance that the tariff rates might ease up, but it is not realistic to think that this is a temporary headwind that will blow over.

SEA countries and businesses must plan ahead and be ready to face future challenges as we enter the era of global economic instability.