Trump tariffs leave costly China supply question unanswered; Indonesia among countries deeply affected
Trump unveiled tariffs of 20% for Vietnam and 19% for Indonesia and the Philippines, signaling those are the levels the US will likely settle on for most of Southeast Asia, a region that ships US$352 billion worth of goods annually to the US.
He's also threatened to rocket rates up to 40% for products deemed to be transshipped, or re-routed, through those countries - a move largely directed at curbing Chinese goods circumventing higher US tariffs.
But still unclear to manufacturers is how the US will calculate and apply local-content requirements, key to how it will determine what constitutes transshipped goods.
South-East Asian nations are highly reliant on Chinese components and raw materials, and US firms that source from the region would bear the extra tariff damage.
That's left companies, investors and economists facing several unanswered questions about Trump's tariffs that appear aimed at squeezing out Chinese content, according to Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore.
"Is that raw materials? All raw materials? Above a certain percentage?' she said. "How about parts? What about labor or services? What about investment?'
In an agreement with Indonesia last week, the White House said the two countries would negotiate "rules of origin' to ensure a third country wouldn't benefit. The deal with Vietnam earlier this month outlined a higher 40% tariff rate for transshipped goods. And Thai officials, who have yet to secure a deal, detailed that they likely need to boost local content in exports to the US.
Missing Details
The Trump administration isn't providing much clarity on the matter right now. US officials are still working out details with trading partners and looking at value-based local content requirements, to ensure exports are more than just assembled imported parts, according to a person familiar with the matter, who didn't want to be identified discussing private talks.
A senior Trump administration official also said this week that details on the approach to transshipment are expected to be released before Aug. 1, the deadline for when higher US tariffs kick in.
Some factories are already adjusting their supply chains to comply with rules that will require more locally-made components in production.
Frank Deng, an executive at a Shanghai-based furniture exporter with operations in Vietnam - and which gets about 80% of business from the US - said in an interview his firm is making adjustments as authorities appear to be more strictly enforcing country-of-origin rules.
Vietnam has always had specific local content requirements for manufacturers, Deng added, including that a maximum of 30% of the volume of raw materials originates from China, and the value after production in Vietnam must be 40% higher than the imported raw materials.
"We've been struggling to meet all the standards so that we can still stay in the game,' Deng said. "But I guess that's the only way to survive now.'
For most of Southeast Asia, reducing the amount of Chinese-made components in manufacturing will require a complete overhaul of their supply chains. Estimates from Eurasia Group show that Chinese components make up about 60% to 70% of exports from Southeast Asia - primarily industrial inputs that go into manufacturing assembly.
About 15% of the region's exports now head to the US, up about four percentage points from 2018.
Local Content
The US has become increasingly vigilant about China's ability to bypass US trade tariffs and other restrictions through third countries since Trump's first trade war in 2017.
Thailand signaled its frustration over the lack of clarity for how much local content is needed in goods exported to the US to avert transshipment rates, but noted it will likely be much higher than a traditional measure of 40%. "From what we've heard, the required percentage could be significantly higher, perhaps 60%, 70%, or even 80%,' Deputy Prime Minister Pichai Chunhavajira said July 14.
"Emerging countries or new production bases are clearly at a disadvantage,' he said, as their manufacturing capabilities are still at an early stage and must rely on other countries for raw goods.
Vietnam, Thailand and Malaysia have all taken steps this year to address Trump's concerns, increasing scrutiny of trade that passes through their ports including new rule-of-origin policies that centralize processing and imposing harsh penalties on transshippers.
Developing nations may still struggle to enforce Trump's rules or comply with the rules if it means going up against China, their largest trading partner and geopolitical partner.
"The reality is it's not enforceable at all,' said Dan Wang, China director at Eurasia Group. "Chinese companies have all kinds of ways to get around it and those other countries have no incentive to enforce those measures, or capacity to collect the data and determine local content.'
-- Reports from Patpicha Tanakasempipat, Skylar Woodhouse and Nguyen Dieu Tu Uyen. -- ©2025 Bloomberg L.P.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New Straits Times
8 minutes ago
- New Straits Times
Stocks cheer the art of Trump's trade deals after EU agreement
The US struck a framework trade agreement with the European Union, imposing a 15 per cent import tariff on most EU goods – half the threatened rate – a week after agreeing to a trade deal with Japan that lowered tariffs on auto imports. Countries are scrambling to finalise trade deals ahead of the Aug 1 deadline, with talks between the US and China set for Monday in Stockholm amid expectation of another 90-day extension to the truce between the top two economies. "A 15 per cent tariff on European goods, forced purchases of US energy and military equipment and zero tariff retaliation by Europe, that's not negotiation, that's the art of the deal," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities. "A big win for the US." S&P 500 futures rose zero point four per cent and the Nasdaq futures gained 0.5 per cent, while the euro firmed across the board, rising against the dollar, sterling and yen. European futures surged nearly one per cent. In Asia, Japan's Nikkei slipped after touching a one-year high last week while MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.27 per cent, just shy of the almost four-year high it touched last week. While the baseline 15 per cent tariff will still be seen by many in Europe as too high, compared with Europe's initial hopes to secure a zero-for-zero tariff deal, it is better than the threatened 30 per cent rate. The deal with the EU provides clarity to companies and averts a bigger trade war between the two allies that account for almost a third of global trade. "Putting it all together, what we've seen with Japan, with the EU, with the talks which are due to be held in Stockholm between the US and China, it really does negate the risk of a prolonged trade war," said Tony Sycamore, market analyst at IG. "The importance of the August tariff deadline has significantly been diffused." The Australian dollar, often seen as a proxy for risk sentiment, was 0.12 per cent higher at US$0.65725 in early trading, hovering around the near eight-month peak scaled last week. FED, BOJ AWAIT In an action-packed week, investors will watch out for the monetary policy meetings from the Fed and the BOJ as well as the monthly US employment report and earnings reports from megacap companies Apple, Microsoft and Amazon. While the Fed and the BOJ are expected to stand pat on rates, comments from the officials will be crucial for investors to gauge the interest rate path. The trade deal with Japan has opened the door for the BOJ to raise rates again this year. Meanwhile, the Fed is likely to be cautious on any rate cuts as officials seek more data to determine if tariffs are worsening inflation before they ease rates further. But tensions between the White House and the central bank over monetary policy have heightened, with Trump repeatedly denouncing Fed Chair Jerome Powell for not cutting rates. Two of the Fed Board's Trump appointees have articulated reasons for supporting a rate cut this month. ING economists expect December to be the likely starting point for rate cuts, but it "may be a 50 basis point cut, if the evidence on weaker jobs and GDP growth becomes more apparent as we anticipate." "This would be a similar playbook to the Federal Reserve's actions in 2024, where it waited until it was completely comfortable to commit to a lower interest rate environment," they said in a note.
The Star
8 minutes ago
- The Star
Displaced villagers at Thai-Cambodian border hope to go home as leaders set to meet for talks
SURIN, Thailand: Rice farmer Samrouy Duangsawai was up early fixing herself a morning meal of sticky rice when a series of loud blasts almost shook her off her feet. Cambodian heavy artillery shells launched from across the nearby border had struck the next village just a few hundred metres away, the rising smoke visible in the air. The 67-year-old's thoughts quickly turned to the two young granddaughters she was helping to raise while their migrant worker parents were pulling shifts at a factory out of town. Before she had time to fully process the situation, a pickup truck had zoomed to her front door – village leaders had ordered all elderly people and children to evacuate their homes immediately. Other than her grandchildren, Samrouy left with nothing but the clothes she was wearing and an old pair of worn-thin blue rubber slippers. 'I was in such shock I couldn't tell what time of day it was,' she told The Straits Times from an evacuation hub set up at the Surindra Rajabhat university campus in Surin city, in Thailand's north-east, where more than 3,000 people have camped out since fighting broke out between the Thai and Cambodian militaries on July 24. The evacuations were part of swiftly executed contingency plans that had been drilled into Thai villagers in Surin along the border since the recent round of tensions flared in the lead-up to May 28, when a Cambodian soldier was killed in a brief skirmish between the two armies. At least 30 people have been killed and more than 200,000 people displaced from both sides. Thai and Cambodian forces extended their clashes at the disputed border into a fourth day on July 27 before Malaysia announced later that evening that the two countries had agreed to Kuala Lumpur acting as mediator in their conflict. Cambodian Prime Minister Hun Manet and Thai Acting Prime Minister Phumtham Wechayachai were scheduled to travel to Malaysia on July 28, Malaysian Foreign Minister Mohamad Hasan said on July 27, in what represents the most substantive, if tentative, steps towards peace since the outbreak of hostilities. The Thai government confirmed the meeting and said its defence and foreign ministers would also travel for the talks. Rice farmer Samrouy Duangsawai was forced to evacuate to Phanom Dong Rak district after artillery shells hit the neighbouring village. US President Donald Trump had earlier on July 26 called on leaders from both countries to end hostilities and threatened to suspend ongoing negotiations on trade tariffs if they did not. In Surin, local public health volunteer and rubber plantation farmer Suwannee Yuenyong, 45, said villagers treated evacuation drills and briefings seriously after a similar border flare-up in 2011 resulted in mass panic and traffic gridlock. Rubber farmer Suwannee Yuenyong said she was worried about her husband's safety after he stayed behind in their village to look after their property. She said the plan in her village in Phanom Dong Rak district was for all women, the elderly and children to be first evacuated to predetermined emergency hubs at the first sign of danger. Able-bodied men were to stay behind and tend cattle and guard against looters. If all else failed, makeshift bunkers and bomb shelters, in some cases constructed using segments of large concrete pipes reinforced with a solid slab over them, offered last-minute protection. Suwannee told ST that her husband was one of about 30 men in her village to remain behind. While she and her three children felt safe at their evacuation centre in Surin, she said they were all hoping for a swift end to the conflict as they were all missing home, and she was extremely worried about her husband. 'I spoke with him over the phone and he said the shelling was quite intense last night, and he had to spend the night in the bunker,' Suwannee told ST on July 26. The plights of those displaced in emergency evacuation centres and those sleeping rough in concrete bunkers have been particularly stark, especially when there is still no clear explanation for the political calculations behind allowing a longstanding historical dispute over an under-demarcated border to escalate in such deadly fashion. What is clearer, however, is that the personal enmity that is still souring in real time between Thailand's Thaksin Shinawatra and Cambodia's Hun Sen – the patriarchs of the two countries' leading political families – is providing a major impediment in efforts to de-escalate and negotiate a ceasefire. 'I thanked everyone but said I would like to ask for some time,' Thaksin, a former prime minister, wrote in a post on X late on July 24, referring to countries that had reached out to mediate. 'Because we probably need to let the Thai military do their duty and teach Hun Sen a lesson about his cunning ways first.' As tensions with Cambodia flared in May, the early conjecture among political observers in Thailand surrounded theories that the influential military establishment was purposefully fanning nationalist sentiment to undermine Prime Minister Paetongtarn Shinawatra, Thaksin's daughter. Thaksin's long-running clash with the pro-monarchist and pro-military conservative establishment has been a defining feature of Thailand's political landscape over the past two decades, and his own tenure as prime minister ended in a coup d'etat in September 2006. In Cambodia, attention has more recently shifted to domestic politics, with some political analysts asserting that Hun Sen's desire to bolster his son Hun Manet's standing also explains his desire to pick a fight with the Shinawatras and Thailand at large. Hun Sen was responsible for leaking an audio recording of his phone call with Paetongtarn, where she was heard taking a deferential tone to the former Cambodian leader while also labelling her own military commander as being on the 'opposing side'. The resulting public backlash has seen large protests in Bangkok calling for her resignation and ultimately led to her suspension from office. But if the motivation for Hun Sen – who was prime minister spanning five decades before anointing Hun Manet as successor – was to paint his son as a capable military commander, analysts said he has mostly succeeded only in hogging the limelight. In an effort to ostensibly debunk online rumours that he had fled the country, Hun Sen posted a series of photos on his official Facebook account portraying him in command as he pored over military maps in a war room. The holes in both domestic political theories, analysts say, is that there are easier avenues to achieve those political objectives without necessarily putting both soldiers and civilians in harm's way. In Bangkok, the Shinawatra clan's dominance had already been on the wane, with Thaksin mired in legal trouble and Paetongtarn struggling in the polls. In Phnom Penh, there are no clear threats to the Hun family's political dominance, and Cambodia's military is, on paper, outmatched by Thailand's larger armed forces, defence analysts said, especially in the air. 'One of the most confusing aspects of this conflict is how little information we have about its origins,' Ken Lohatepanont, a political analyst and doctoral candidate at the University of Michigan, said. 'No one outside a very small circle of Cambodian and Thai high-level officials has a complete picture of what is going on.' News of potential peace negotiations mediated by Malaysia had yet to filter through Surin's border villages in Phanom Dong Rak during a visit by ST on July 27. With almost all residents evacuated, other than some men and their dogs standing guard against looters, the villages were eerily empty and quiet, save for the noise of artillery in the background. Narin Wongpitak, chief of Khun Han subdistrict in neighbouring Sisaket province, told ST that local communities along the border were on high alert. 'We are trying to do everything we can to make our people safe,' he said. Both countries have said they want a ceasefire, but disagree over the readiness and sincerity of the opposing side to come to the table, while continuing to trade blame over which side is at fault for continuing hostilities and targeting civilians. 'I made it clear to Honourable President Donald Trump that Cambodia agreed with the proposal for an immediate and unconditional ceasefire between the two armed forces,' Cambodian Prime Minister Hun Manet posted on Facebook, noting that he had also agreed to Malaysia's earlier ceasefire proposal which he said Thailand had reneged on. Thailand's Acting Prime Minister Phumtham had earlier said that his country could not begin talks while Cambodia was targeting its civilians, and that it was seeking direct bilateral talks over international mediation. During a visit to the border region in Ubon Ratchathani on July 26, Thaksin, who no longer holds any formal government role, refuted criticism over his X post and denied that the feuding families were a catalyst for the military conflict. But he could not resist taking a further shot, saying Hun Sen liked to stir trouble while 'sitting on social media all day like a zombie'. Back in Surin, villagers from Kap Choeng district were forced to evacuate a second time on July 26 and take shelter at a Buddhist temple, after their initial emergency accommodation at a local school in Prasat district was deemed too close to Cambodia's strike radius and unsafe. Unlike other villages where some people remained behind, vegetable vendor Chakkrit Khamnuan, 25, said everyone in his village in Kap Choeng district was ordered to evacuate because its proximity to a Thai military base on the border made it a likely target of Cambodian attacks. Chakkrit said he usually sells vegetables at a large cross-border market that relies on traders from both countries, and that business at the market had been affected for months as tensions mounted. Suwannee, the rubber farmer from Phanom Dong Rak, said her entire village was angry at the situation and hoped to be able to return home soon. 'We want the conflict to end as soon as possible with a swift Thai victory to teach Cambodia a lesson to never mess with Thailand again,' she said. - The Straits Times/ANN
New Straits Times
8 minutes ago
- New Straits Times
Gold hits near two-week low after US, EU agree to tariff deal
NEW YORK: Gold prices fell on Monday to their lowest in nearly two weeks, as a framework trade agreement between the United States and European Union reduced appetite for safe-haven assets. Spot gold was down zero point one per cent at US$3,332.39 per ounce, as of 0020 GMT, after touching its lowest level since July 17. US gold futures edged zero point one per cent lower to US$3,332.50. The US struck a framework trade agreement with the European Union on Sunday, imposing a 15 per cent import tariff on most EU goods – half the threatened rate – and averting a bigger trade war between the two allies that account for almost a third of global trade. The agreement mirrors key parts of the framework accord reached by the US with Japan, but like that deal, it leaves many questions open, including tariff rates on spirits, a highly charged topic for many on both sides of the Atlantic. Investor sentiment improved following the deal, with European currencies and US stock index futures trading higher. Senior US and Chinese negotiators will meet in Stockholm on Monday to tackle longstanding economic disputes at the centre of a trade war between the world's top two economies, aiming to extend a truce keeping sharply higher tariffs at bay. The US dollar index eased zero point one per cent, making greenback-priced bullion less expensive for overseas buyers. The Federal Reserve is widely expected to leave its benchmark interest rate in the 4.25–4.50 per cent range at the conclusion of a two-day policy meeting on Wednesday. Fed Chair Jerome Powell has indicated the central bank should wait for further economic data before making any rate adjustments. US President Donald Trump said on Friday he had a positive meeting with Powell, suggesting the Fed chief might be inclined to lower rates. Spot silver was up zero point one per cent at US$38.17 per ounce, while platinum gained zero point nine per cent to US$1,413.50 and palladium rose zero point five per cent to US$1,225.25.
