Asia faces tariffs, again

It’s officially 90 days past the first deadline for America’s biggest trading partners to reach a tariffs deal with the Donald Trump administration. And yet, for Asia, negotiations are still a hot mess with no one really knowing what will happen next.

That confusion only deepened this week as Trump sent out a bunch of letters with ‘take-it-or-leave-it’ tariff offers. The majority of the nations that got those letters were… you guessed it, in Asia.

Of the 23 governments that the Trump administration wrote to, 14 were Asian, and for most, the letters reportedly landed in the middle of the night and without a heads up. “To give adjectives to the reaction or response, it would be, number one, shock. Number two, frustration. And number three, anger,” a former Japanese official told Politico magazine in an interview.

“We have no idea what the hell he’s sending, who he’s sending it to or how he’s sending it,” the magazine quoted another official from an unnamed country as saying.

The White House has rejected accusations that the letters came out of nowhere and Trump has since re-iterated that the US wants “to have relationships” with these countries. But it’s worth wondering what that relationship would look like when Asian economies start to feel the burn of this tariff exercise.

For Japan and South Korea, the letters lay out duties of 25% — on top of levies that the two countries are already paying on autos and steel, two of their most exported products. That’s a gut punch for these export-reliant countries, especially since they are battling a slowdown at home. Analysts say the extra levies could erode up to 0.7 percentage points from South Korea’s GDP.

In Japan, some project that number could go as high as 1.1%. But the weight of auto tariffs is so heavy that Prime Minister Shigeru Ishiba has dug in on his promise of no deal until those are removed. Following the arrival of Trump’s latest letter, Prime Minister Shigeru Ishiba declared: “We will not be taken advantage of... We will protect what needs to be protected.”

Then there is Vietnam, which was believed to be the first Asian country that seemed to have found its way to a deal with the US. But Politico reported on Thursday that the deal now hangs in balance, once again, after Trump raised the tariff rate at the last moment. The report noted that while Trump’s social media post declared Vietnam would face tariffs of 20%, officials in Hanoi were under the impression that the levies would be a much smaller 11%.

And Trump’s post wasn’t just a surprise for Vietnamese officials, it surprised many at the White House too, Politico reported, quoting one lobbyist as saying: “Trump sandbagged everybody.”

There’s also concern that if the deal still manages to hold, it would put Vietnam’s significant amount of trade with China under American scrutiny. The deal puts a tariff of 40% on goods that are transshipped via Vietnam.

Meanwhile, the tariff letters this week would also raise costs for Asian manufacturing hubs Cambodia, Indonesia, Laos, Malaysia and Thailand which face tariffs between 25 and 40%.

South Korea, Thailand and Indonesia are also planning to increase LNG imports from the US which would mean a bigger energy cost, as S&P global notes. Its analysts say US tariffs could further depress Asian steel demand, and accelerate a fall in the metal’s prices.

The only country that seems to not be in Trump’s black book — so far — is India, whose negotiators are expected to visit Washington again soon, with an aim to sign a deal by the end of the month. Still, Indian pharmaceutical firms — who shipped $9.8 billion worth of goods to the US in the financial year ending this March — will face the threat of 200% levies. Indian media says the country’s negotiators have drawn ‘red lines’ around critical sectors like agriculture and dairy, putting the ball on the deal “firmly in the US’ court.”

With so much going on, what Asian leaders are bound to find particularly frustrating is that whether or not these tariffs will actually go through is still completely uncertain. “It is possible these tariffs will never be implemented,” JP Morgan analysts reportedly wrote in a note to clients Wednesday.

Trump added to that uncertainty this week saying his latest tariff deadline of August 1 was "firm, but not 100% firm”. And yet, on Thursday night, he floated yet another flavour of tariffs — blanket levies of 15% to 20% on “all of the remaining countries”. Considering the US has not reached a single deal with any trading partner except the UK… that’s got to mean almost everybody, right?

But we don’t know. In fact, nobody knows. And that right there is the problem.

Tariffs ‘aren’t a passing storm’

Given the amount of chaos that Trump has brought to trade relationships already — when it has not even been a full six months since his arrival — Asian leaders are, no doubt, thinking how they can secure the future of their trade. There is a larger belief that latest threats are a mere attempt to pile on pressure and accept deals on American terms.

That was evident when leaders of the ASEAN met in Malaysia this week. Six members of the bloc have received Trump’s letters.

Malaysian Prime Minister Anwar Ibrahim began the summit with a warning that global trade was being weaponised. While he did not explicitly mention the US, Anwar said “tools once used to generate growth are now wielded to pressure, isolate and contain.” He said the bloc needed to move beyond just trade declarations and get serious on regional trade.

“This is no passing storm… It is the new weather of our time,” he said.

Anwar has previously rejected any chance of signing a deal that “does not benefit” his country. “It has to be fair,” he has said.

These dynamics would make for a rather awkward first trip to Asia for US Secretary of State Marco Rubio who is meeting ASEAN leaders this week. In his bid to woo Asia, Rubio will also be vying with China, whose top diplomat Wang Yi is also at the summit.

China, which remains in an on-again-off-again relationship with the US, is using the latest turbulence to, yet again, woo Asian leaders as it has been doing since Trump’s tariff mania began. Early this week, before the summit began, China’s foreign ministry spokesperson Mao Ning claimed Beijing “firmly upholds ASEAN centrality”. “We stand ready to foster an even closer China-ASEAN community with a shared future,” she said.

On Thursday, the bloc concluded negotiations on an upgraded ASEAN-China free trade agreement. They plan to sign the pact in October.

• Marco Rubio has begun meetings in Malaysia, and held his first in-person talks with China’s Wang Yi on Friday.

• Vietnam is planning to crack down on the illegal transshipment of goods from China to comply with its trade negotiations with the US.

• In other news, Tesla has imported cars and merchandise worth $1 million for the launch its first showroom in India’s financial capital Mumbai.
  

• China is reviewing its policies in regard to stablecoins and digital currencies amid calls to develop a yuan-pegged stablecoin.
  

• And China’s BYD has become the world’s first carmaker to take “full responsibility” for an autonomous driving feature — its breakthrough level 4 ‘smart parking’.