U.S. Tariffs: A test for ASEAN’s neutrality and trade future

AWANI

U.S. President Donald Trump’s new tariffs have sparked regional uncertainty, prompting ASEAN nations to question neutrality and the impact on smaller, trade dependent economies, as analysed by Professor Shandre Mugan Thangavelu.

Transcript

00:00Right, we are still unpacking Trump's tariffs and its implications, especially within this region.

00:06Now, many in Asia, especially within ASEAN, are left wondering how to interpret this move.

00:11Is maintaining neutrality still a viable option amid escalating U.S.-China trade tensions?

00:17And what does it mean for smaller trade-dependent economies in the region?

00:22Now, here to help us is Professor Chandra Mugen-Tangavelu, head from the Jeffrey Chia Institute of Southeast Asia.

00:28Thank you so much for joining us.

00:31Now, let's tackle the first question, which is, how should Asia, especially ASEAN, interpret this move right now?

00:38Is neutrality no longer an option in U.S.-China trade tensions, considering the new development?

00:45Well, neutrality is always the main focal point and the only equilibrium we have.

00:50The reason is what Trump has done is created a higher level of uncertainty and higher level of risk in the global trade itself,

01:01which basically means that you can't move to the right or the left,

01:05which means that neutrality and defensive position is the right way,

01:09and coalition is still the right way to manage the impact of differential tariff rates

01:15and using weaponizing trade and tariff as a means to achieve the other objective

01:24that doesn't come into the space in terms of trade and how we do business and so on and so forth.

01:33It creates a lot of uncertainty, higher level of risk, and added another institutional risk

01:38in terms of how we can conduct business in the U.S. itself.

01:43And it's not just trade within countries, but also the multinationals have to unpack

01:48the real intention of what Trump is trying to do

01:51and incorporating the institutional risk into the future investment decisions itself.

02:00That makes it very difficult to actually put a premium, exactly what Trump is trying to do.

02:07So neutrality is still the right way to go.

02:10That will mitigate many things businesses want to do.

02:14Think of the future.

02:16Think of the five-year plan and medium to long-term plan.

02:21And keep it in that plan will be the right strategy and not to fall into this trap,

02:27which Trump is actually trying to put a lot of traps and a lot of booby traps around,

02:34which basically means that three months ago it was 10 percent and three months after it was 20 percent.

02:40And then he will increase the rate in not very constructive, in a very clear manner.

02:49That's what the rule-based, market-based trading regime needs.

02:54He's weaponizing trade and then in some way he's also legalizing rent-seeking,

03:02which basically means no country knows what the other deals that the other country has made,

03:07which is against the MFN principle itself.

03:09So the question is neutrality, yes.

03:13ASEAN centrality and neutrality is important.

03:16ASEAN should still keep the focal point of the 85 percent trade that will give the baseline for them.

03:22And strengthen that base is very critical for them.

03:25And fairly, the other 25 percent, 20 percent trade with U.S.,

03:31fairly they have to mitigate the risk as much as possible.

03:34Right, Prof.

03:35We talk about, especially if you zone in into this region,

03:38what are the likely spillover effects for small trade-dependent economies?

03:42For a small open economy, you need a rule-based trading regime to actually maintain the rule

03:52and to engage larger economies itself.

03:55So you don't have that rule, and as I mentioned before, you will end up the corner solution.

04:02It's not just the corner solution in trade,

04:04but a lot of other geopolitical issues will be incorporated in that element.

04:10That's what I meant by legitimizing and legalizing rent-seeking.

04:18And when you go to that corner, you're going to see a lot of uncertainty and a lot of risk.

04:22So for small open economies, still the rule-based and market-based trading regime is the right way to go.

04:28And the way ASEAN centrality and ASEAN is built its focal points in terms of rule-based,

04:33market-based, and WTO principle is the key, which is actually 80 percent of our total trade.

04:38So fairly, we need to find a substitute for the next 20 percent.

04:42So it's a short-run scramble to manage the mitigation effects.

04:49But fairly, from a multinational point of view, there will be less decoupling effects

04:54because it's very difficult to understand how Trump is going to change his baseline tariff in the next three to four months.

05:01Right. Thank you so much, Prof, for your analysis.

05:04We're looking forward to more developments on this.

05:07Thank you so much.

05:08Right.

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