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Stephen Olson

Now that Donald Trump’s arbitrary July 9 deadline for negotiations on “reciprocal” tariffs has come and gone, what are the implications for Southeast Asia?
To date, Vietnam, Indonesia and the Philippines are the only countries in the region to have secured so-called deals. Other countries are left with the previously announced April tariffs intact, although the negotiating deadline has been extended for three weeks to August 1. As things stand, there remain few winners in Southeast Asia in the ongoing saga.
Details on the agreement with Vietnam are sparse, but it seems Hanoi has managed to get its initial “reciprocal” tariff rate of 46 per cent reduced to 20 per cent. A 40 per cent tariff will be applied on transshipped products – without an exact definition of exactly what constitutes “transshipment”.
Trump posted on social media that Vietnam had granted the US “TOTAL ACCESS” to its market, which seems to amount to a duty waiver on US products entering Vietnam.

Details on the agreement with Indonesia are similarly sparse, but its initial “reciprocal” tariff rate of 32 per cent has apparently been reduced to 19 per cent. US exports to Indonesia would face no tariffs and Jakarta has agreed to purchase additional US goods, including 50 Boeing jets.
The Philippines was able to secure a small tariff reduction from 20 to 19 per cent, under the proviso that the US would face zero tariffs entering the Philippines, although it is unclear if that is across the board or just in the automotive sector.
A word of caution about any of these announced “deals”: they are far from final. Negotiations are ongoing to work out details and terms are subject to further clarifications or amendments. There is also no basis to judge if these “deals” can be considered “wins” for Vietnam or Indonesia until all the final tariffs are known.
The same is true for threatened or already implemented sectoral tariffs on key products such as cars, steel, pharmaceuticals, electronics, timber and copper. If a country receives a comparatively low “reciprocal” tariff but its main exports are hit with sectoral levies in the range of 25 to 200 per cent, there will be little to celebrate.
Another wild card is Trump’s threatened 10 per cent tariff on Brics members and others that align with the bloc’s “anti-American” views. Indonesia, as a Brics member, would obviously be first in the region to get hit. Depending on how the US interprets “alignment”, however, other countries in the region could find themselves facing the additional 10 per cent levy. The safest presumption is that the Brics tariff would be tacked onto Indonesia’s 19 per cent rate.


Perhaps the most complicated issue for Southeast Asia will be the implementation of the transshipment provisions. Since the US began ramping up tariffs during the first Trump administration, it has become evident that the region has been used as a conduit for Chinese products to circumvent US tariffs. The Trump administration entered office determined to put a halt to these practices. The “reciprocal” tariff negotiations have provided the mechanism to raise the issue with Southeast Asian partners.
A critical distinction needs to be made. Some transshipments are entirely legal and permissible under trade rules, and the US does not have a legitimate complaint in those cases. In other cases – unfortunately sometimes all too prevalent – transshipments are fraudulent and the US, or any country that cares about trade rules, would be justified in seeking redress.
If, for example, a product is shipped from China into Vietnam with its country-of-origin status on customs documentation altered to indicate “Vietnam” instead of “China”, and the product is subsequently exported to the US to take advantage of the lower tariff rate applied to products of Vietnam, that is fraud – plain and simple. A legally binding customs document has been deliberately falsified.
If the 40 per cent tariff is intended to apply to these cases, it is a rather bizarre acknowledgement of an illegal practice and could even be interpreted as tacit acceptance. A practical question therefore arises: if it is possible to identify cases of fraudulent transshipment, would it not also be possible to pursue law enforcement procedures rather than simply applying the higher 40 per cent tariff?

There is, however, an entirely legal way to engage in what could loosely be referred to as “transshipment”. If a product from China enters Vietnam and undergoes sufficient processing or serves as an intermediate good incorporated into a larger finished product, under relevant rules of origin that item could cease to be a product of China and would legitimately be considered a product of Vietnam. In that case, there would be no basis on which to assess a higher rate of duty than on products consisting of 100 per cent Vietnamese inputs.
So what is the intent of the Trump administration here? Will the agreement include a remarkably convoluted and stringent rule of origin that would somehow account differently for inputs from China? Or is it aimed at applying a higher tariff to only illegal transshipments? As it stands, the details remain murky.
The only thing that is clear is that implementing these provisions will create significant complications for the Southeast Asian countries that accept them. Based on experience, the Trump administration is unlikely to be completely satisfied with efforts to curtail transshipments, and reinstatement of tariffs for “non-compliance” will hang overhead like the Sword of Damocles. China will feel aggrieved by what it will view as compliance with the Trump administration’s “anti-China” policies, and some form of retribution can be expected. By the time the dust settles, these “reciprocal” tariff deals are unlikely to yield many “winners” in Southeast Asia.
Stephen Olson is a Visiting Senior Fellow at ISEAS – Yusof Ishak Institute and a Non-Resident Fellow and Visiting Lecturer at the Yeutter Institute of International Trade. This article was first published on the institute’s commentary website fulcrum.sg.


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Trump’s Brics tariff threat and transshipment provisions could further complicate trade negotiations as the August 1 deadline looms


Trump’s Brics tariff threat and transshipment provisions could further complicate trade negotiations as the August 1 deadline looms.


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.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Trump’s Brics tariff threat and transshipment provisions could further complicate trade negotiations as the August 1 deadline looms

Trump’s Brics tariff threat and transshipment provisions could further complicate trade negotiations as the August 1 deadline looms