With eye on US presidential polls, Chinese firms engaging in ‘Southeast Asia-washing’ brace for more tariffs

US government data shows it notched a US$14 billion trade deficit with Malaysia across the first eight months of this year, and a US$77 billion trade deficit with Vietnam in the same period. Its trade deficit with Thailand was around US$28 billion. 

Vietnam has been “very successful” in getting firms to look at locating some or all of their production processes in the country, explained trade expert Deborah Elms.

“As Vietnam is well connected to key markets via free trade agreements, it has been an important spur to new inbound investment,” said Ms Elms. 

Some of this investment is currently coming from Chinese firms looking to diversify their risks, lower production costs or avoid high tariffs that apply to goods directly shipping from China. 

“In general, this should not pose a problem. Of course, Vietnam has to educate firms on the rules of these agreements so that firms are following the right steps to legally claim origin,” said Ms Elms of the Asian Trade Centre, a trade-related consultancy in Singapore.

“However, if Trump gets re-elected, Vietnam (especially) may face a problem as Trump is obsessed with the bilateral trade deficit numbers for goods. Vietnam sends way more products to the US than the reverse and he is likely to want to stop this,” she added.  

But American firms with sizeable business interests in, and with, China could wield some influence, believes Dr Oh Ei Sun, senior fellow at Singapore Institute of International Affairs think tank. 

Tariffs and sanctions could be “routinely waived” under heavy lobbying by such firms in the scenario of a second Trump presidency, he said.

“It remains to be seen if a second Trump administration will robustly enforce these hostile measures against China and, by extension, these US tariffs and sanctions-evading destinations in Southeast Asia,” he said.

Additional reporting by Melissa Goh