Donald Trump’s blitz through the ASEAN meetings at the weekend has shone a spotlight on usually dry and unambitious regional summitry. Exaggerated claims by the US President that “we intend to be a strong partner for many generations” will prompt a collective sigh of relief across the region. Southeast Asian countries can walk away pointing to progress, but any temptation towards complacency must be avoided.
In a whirlwind of activity, Trump personally oversaw signing of the peace deal he claims to have brokered between Cambodia and Thailand and confirmed trade deals with Malaysia and Cambodia, while progressing framework agreements on negotiations with Vietnam and Thailand.
Virtually unimpeded market access for most US exports appears to be the price for negotiation, as well as specific purchases of aircraft and agricultural and energy products. The explicit commitments from Malaysia and Cambodia to eliminate or lower tariffs on US goods and engage in regulatory reforms are what Trump also seeks from Thailand and Vietnam. Malaysia also committed to US$70 billion in new investments in the United States and to forgo any future export restrictions of rare earth elements.
Provisions targeting alignment with US economic and national security objectives appear to be efforts to bind these countries to the Trump administration’s attempts to de-risk from China. These include commitments to act against foreign firms that impinge upon US economic interests and stronger cooperation with US export controls.
In return, reciprocal tariff product exemptions were secured – around 12% of Malaysia’s exports are exempt according to a government official.
Trump had already carved out some exemptions from reciprocal tariffs on a product basis. These agreements therefore confirm a possible shift in the Trump administration’s thinking about the end point of all of this. Exempted goods include agricultural and forestry products, critical minerals, as well as some industrial inputs and materials with certain sectors receiving further carve outs like pharmaceuticals and aircraft.
A key detail missing, however, was the issue of transshipment.
Briefly mentioned in the agreement with Cambodia, when the White House statement on the Malaysia deal was first released the “rules of origin” section was intentionally left blank, only to be subsequently changed to include one of two provisions within the Cambodia agreement. The terminology remains vague with no strict commitments on either country.
Transshipment refers to when goods are fraudulently certified in customs as having come from locations they did not. The US trade negotiations with Southeast Asian countries brought general tariffs to 20% but included the provision that 40% tariffs would be applied to goods transhipped through ASEAN. That rate is close to the initial reciprocal tariffs announced on April 2 for many countries, even as transshipment in this context remains undefined.
This will prove more consequential in determining whether US trade policy truly challenges the region’s export-led growth model than existing product level carve outs.
Transhipment tariffs are targeting China’s role in the region’s supply chains.
If Chinese content within goods is targeted, rather than real transshipment, this would pose major difficulties for producers.
ASEAN countries are commonly seen as a “backdoor” for Chinese goods to enter the US market and avoid tariffs. To be sure, supply chains moved out of China in response to the US-China 2018 trade war. Southeast Asia began supplying many of the goods America had previously sourced from China. These exports rely on materials, parts and components from China.
However, the reality is transshipment of goods is not the same thing. In Vietnam, often cited as a more egregious example, transshipment only represented 8.8% of the increase in exports to the United States by 2021. That is less than US$ 8 billion. The amount could reasonably be said to be higher now, but transshipment would still represent a small amount of ASEAN’s overall US exports.
Southeast Asia cannot allow a broad definition of transhipment to be applied.
If Chinese content within goods is targeted, rather than real transshipment, this would pose major difficulties for producers. Critical to the region’s own competitiveness has been investment, capital goods, as well as inputs and intermediates from China. Attempts to sever or drastically impede those economic linkages would see the region’s supply chains find it much harder adapting to US tariff policy.
Even with these agreements, it is not clear how far Trump might go.
The inclusion of critical mineral collaboration announcements with Cambodia, Malaysia, and Thailand demonstrates ASEAN does have cards to play with Trump. Attracting the United States into critical mineral supply chains in the region could be a powerful tool for carving out concessions on transshipment. Trump already demonstrated interest in Indonesia’s copper and critical minerals when finalising trade negotiations. He clearly views the region as a viable hedge to China’s critical mineral dominance.
Despite China’s limited backdown from its expansive rare earth control regime, critical mineral exposure to China will remain an ongoing strategic risk for the United States. ASEAN could therefore capitalise on its potential to be a “major contributor” to global supply chain diversification for critical minerals to strengthen its hand in trade negotiations. Domestic political and popular opposition due to concerns about environmental damage pose hurdles but adequately addressing these is both possible and beneficial in the long run.
After the ASEAN summit, the transshipment issue remains. Perhaps critical minerals might be a pathway to set the agenda.
