Southeast Asia – even compared to its Asian peers – was particularly hit in the “Liberation Day”, announced by Donald Trump. Some countries stand out in the new White House spreadsheet of their so -called reciprocal tariffs. Cambodia, with a new tariff of 49%; Vietnam, with 46%; and Thailand, with 36%.
China specifically received an additional 34% rate on “Liberation Day”, in addition to the previous 20% rates previously announced.
Southeast Asian economies have widely benefited from the “China plus one” strategy, an approach in which leading manufacturers began to forward some of their processes through third parties.
This puts companies, including many US leading brands in a dead end. For example, gap, Nike and Levi’s diversified their supply chains away from China, moving to other Asian economies to leverage lower costs and protect themselves from the US-China commercial conflict.
Vietnam manufactures 1/4 Nike products, including half of all its shoes, according to the annual report of the sportswear company. Southeast Asian country is also the largest gap supplier, followed by India and Indonesia. Lululemon also gets 40% of its Vietnam goods.
In recent years, both foreign and Southeast Asia brands have benefited from the “China plus one” strategy. Southeast Asian economies offered lower costs than China, especially in relation to labor, preserving access to the country’s profound supplier network.
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These countries also attracted investments during the first Trump administration to avoid previous rates on China. Finally, supply chain interruptions, such as pandemic, encouraged companies like Apple to diversify their supply chains, based on Vietnam and India operations to avoid depending on China.
But now do these brands face a series of bad options: staying in Southeast Asia and paying the high rates? Try to find another jurisdiction with lower rates? Or change manufacturing to the US (much more expensive)?
Western and Chinese companies have adopted chain diversification for several reasons: cheaper labor outside China, tariff dropout and guarantee of resilience amid interruptions such as Covid-19 pandemic.
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Trade surplus
Vietnam had a commercial surplus of $ 123.5 billion with the US last year, leading analysts to alert earlier this year that the country was at risk. Hanoi tried to obtain a relief preventively cutting import tariffs before April 2. On Friday (4), Trump said he had a productive connection with Vietnam’s main leader to Lam. According to Trump, Lam offered to reduce Vietnamese tariffs on US products to zero if the two countries reached an agreement.
Other Southeast Asian nations facing new significant tariffs include Indonesia, with a 32%rate, and Malaysia, with a rate of 24%.
Vietnam, which gets up to 30% of its US exports GDP, will probably be the hardest hit. “In just a few years, Vietnam has gone from the main beneficiary of the US-China commercial tensions and the redirection of the global offer in Asia to one of the main targets of US tariffs,” HSBC economists Frederic Neumann and Justin Feng in a note on Thursday (3).
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OCBC bank now estimates that Vietnam GDP will grow only 5% this year, below 6.2% due to tariffs. Vietnam leaders hoped the country would grow up to 8%. The Singapore Bank also thinks that Thailand will suffer from Trump’s fares, relegating its growth forecast to 2%, below 2.8%.
This story was originally presented at Fortune.com
