Tariff Lalaland: Taking the ASEAN approach to a complicated relationship

Regional tech distributors will be hoping Malaysia mediates the relationship between China and US

The tariff situation between the US and China is not showing any signs of ease. Currently, the US has set tariffs on Chinese goods at 145%, with the exclusion on mobile and computer devices, while China has announced that US goods will be taxed at 125%. Other countries around the world have a 10% fixed tariff rate for 90 days.

As both these companies continue to have a go with each other, the tech community is already preparing for the fall out. And right now, the best possible solution is the Southeast Asian region. In fact, Southeast Asia has already been serving as an alternative for most US manufacturers even before the start of President Trump’s second term.

Currently, Vietnam is seen as the best location for US manufacturers that are moving out of China. While India is an additional option, Vietnam’s geographic proximity to the US makes it’s a favourable choice. Many US brands already manufacture in Vietnam, with notable examples in apparel, footwear, electronics, and energy. Key brands include Apple and Intel as well as First Solar, a solar panel manufacturer, that has invested in Vietnam and exports a substantial number of solar panels to the US.

Apart from Vietnam, Malaysia, Thailand, Indonesia and Singapore are also supporting expansion plans for US tech brands into the region. For example, laptops by US vendors are assembled in the region and shipped to the US. Key components for data centers are also manufactured and assembled in the region.

In the semiconductor industry, most US chip companies have invested in fabs in the region. While chips have been initially exempted from tariffs, reports show the Trump administration considering new semiconductor tariffs.

"We are taking a look at Semiconductors and the WHOLE ELECTRONICS SUPPLY CHAIN in the upcoming National Security Tariff Investigation," Trump posted on social media.

Should semiconductors be subjected to tariffs, the Southeast Asia region will face even more challenging times. Currently, US chips are banned from being sold in China. Tariffs in semiconductors could see US semiconductor companies move manufacturing back to the US. The fabs that remain in the region could eventually be bought and taken over by other manufacturers, including Chinese ones.

The ones impacted the most by this would be regional distributors and resellers. Already expecting a heavy impact from the tariffs, any further tariffs to the supply chain would deal an even bigger blow to them.

To deal with this, the Southeast Asian region is hoping to take a regional approach to the tariff situation. Countries in Southeast Asia need and value the business opportunities from both the US and China. Reducing trade or rerouting supply chains to support either country would not be a favorable decision.

Hence, Southeast Asia would need to manage the expectations of both China and the US, especially with the region currently gets the hires exports into both countries. Tech vendors in the region would also not want to reroute their supply chains, after establishing their presence in the region for decades.

Taking the ASEAN approach to negotiate with both countries is crucial. Malaysia, which is chair of ASEAN this year, will be looking to work with leaders from both countries towards an acceptable approach in the region. With China’s President Xi Jinping's state visit to Malaysia this week expected to focus on relations between both countries, Anwar Ibrahim, Malaysian Prime Minister will also be hoping to work out the impact of the tariffs.