Commentary: As tariff deadline looms, can Southeast Asia strike a deal with the US?

CNA

16 hours ago

SINGAPORE: The global economy will enter yet another cycle of volatility as the deadline to negotiate a trade deal with the United States approaches in a week. The stakes for Southeast Asia couldn't be higher.
The Trump administration will fall short of its ambitious target of making 90 deals in 90 days, after it paused its rollout of the 'Liberation Day' tariffs. For now, only two framework agreements – which codify parts of an eventual deal including trade and non-trade measures – have been signed with the United Kingdom and China.
On Friday (Jun 27), US Secretary of Commerce Howard Lutnick claimed another 10 deals with major trading partners will be announced 'soon' and many more will be concluded by Labour Day on Sep 1.
Separately, President Donald Trump remarked that the Jul 9 deadline to conclude negotiations won't be extended. Instead, Washington will inform countries of the final tariffs rates they will pay to have access to the US$28 trillion economy.
Given that mixed messaging is a tactic Washington has used quite successfully, it is best to watch financial markets for signs which of these pronouncements will be the actual outcome.
TRICKY NEGOTIATIONS
Washington imposed a baseline 10 per cent tariffs on all countries and territories, including Singapore, which buys more from the US than it sells. This will undoubtedly affect but not derail the local economy.
But for some – particularly Cambodia (49 per cent), Vietnam (46 per cent), and Malaysia (24 per cent) – the additional tariffs could permanently damage their trade-driven economies and leave millions unemployed.
Trade negotiations are notoriously difficult and time consuming. Negotiators haggle over tariffs on individual goods, they negotiate non-tariff barriers, and they ask for time for local industries to adjust to concessions.
All these are at play in the Liberation Day tariff negotiations. Almost every Southeast Asian country has offered lower-to-zero tariffs for American goods of importance to the US such as agriculture products, commodities and automobiles. Vietnam, Cambodia and Malaysia have also offered more stringent rules about counterfeits and customs controls, so their territories are not misused by other countries trying to avoid higher tariffs.
Two factors make these negotiations tricker.
One, the region is competing with the rest of the world – and with itself – to get the best possible deal in a near-impossible time frame.
For the US, the biggest bang for the buck will be concessions from its largest trading partners - and then the rest of the world. From the region, only Vietnam is in the list of top trading partners, and it is competing for concessions with the likes of Japan and Canada. Compared with the rest, Vietnam has significantly less leverage with the US, and it is unlikely to end up with the 10 per cent baseline tariff rate.
Countries also have to keep an eye on regional competition. Cambodia, for example, needs to ensure that whatever tariff rate it ends up with, its low-margin, labour-intensive textile and apparel industries don't become less competitive against companies from Vietnam and others with whom they compete.
CHINA LOOMS LARGE
As a key trading partner and investor in the region, China looms large in the negotiations. Southeast Asian countries will want to ensure that whatever deals they strike are not worse that what Beijing extracts from Washington.
China is also significant for the entire region in other ways. Washington is very keen to use tariffs as a leverage to disentangle the global supply chain from China. Achieving that goal completely is both wishful thinking and virtually impossible. But countries will need to ensure that in industries critical to the US, reliance on Chinese parts is reduced over time.
Furthermore, like Vietnam has done, countries will need to be stricter so that country of origin rules are not misused by Chinese companies.
With just a week to go, a deal – even an imperfect one – will be an ideal outcome. For the Trump administration, an initial agreement is as good as a final one to satisfy its political base and reinforce Mr Trump's image as a master dealmaker.
For those countries who fail to strike a deal, an extension to the deadline will be the second-best outcome. For the millions whose livelihoods depend on trade with the US, anything less will be a disaster.