Tariffs and tsunamis
I know it helps to look for silver linings rather than dwell on dark clouds in unsettling times like now, when United States President Donald Trump’s erratic moves threaten to throw the whole world in great disarray. There has indeed been much self-consoling about how Trump’s tariffs could help us gain an advantage over our neighbors, given that the 17 percent he imposed on our exports to them is the second-lowest in Asean. Some take comfort in our far smaller dependence on exports (which is otherwise a glaring handicap), with an export-to-GDP ratio in 2023 of only 12.7 percent, while our neighbors average 60 percent.
The US, our single largest export market, accounted for 16.6 percent of our total goods exports last year. So even under the far-fetched scenario of complete loss of our US exports, our GDP stands to lose only two percent (that is, 16.6 percent of 12.7 percent). Meanwhile, optimists expect US purchases of goods from China, Vietnam, and other neighbors that Trump slapped with much higher tariffs to shift our way instead, and that some factories now in China and even Vietnam would move here as well.
Our biggest mistake would be to allow these silver linings to lull us into complacency and fail to see and prepare enough for the dangers that lie ahead. I and many others have already pointed out that even as the direct hit of Trump’s tariffs will be much lighter on us than on say, Vietnam with the 46 percent tariff slapped on them, it’s the indirect hit from a likely global economic downturn that’s the bigger threat. And whether the favorable trade and investment diversions described above, would even happen, is a big question mark, for three reasons.
First, Trump turned out to be tentative about the sweeping tariffs he announced on April 2. His recent backtracking while gloating that dozens of world leaders are now rushing to appease him suggests that his April 2 “Liberation Day” tariffs may have been mere bravado meant to jolt the world into submission—hence may yet drastically change. Exemptions and steep reductions from earlier announced rates have in fact already been announced, especially for critical inputs to US industries, and favored consumer products like laptop computers and smartphones.
Second, our attractiveness to firms moving out of China and Vietnam to avoid the steep US tariffs remains negated by age-old deterrents that have long led foreign direct investments to elude us, the topmost of which are bad governance and politics. I cannot believe that we can overcome these deeply rooted flaws overnight.
Third, Asean has announced plans to negotiate collectively on Trump’s threatened tariffs as a bloc. It does make sense to take strength in numbers rather than have each of us engage the US individually in lopsided David vs Goliath negotiations. But this cancels the advantage we otherwise enjoy with our lower 17-percent tariff vis-à-vis our neighbors.
Still, there’s an even greater danger that’s imminent even if Trump chooses to drop his “reciprocal tariffs” on all else other than China, which some believe is his sole target anyway. This is the very real prospect that China, shut off from the US market with prohibitive tariffs, will flood Southeast Asian markets with their manufactured products that have nowhere else to go—and in the process kill domestic manufacturers along with hundreds of thousands, possibly millions of jobs elsewhere in the region. Even prior to Trump’s tariffs, manufacturers in Thailand, Indonesia, Malaysia, and here had already been reeling from a massive onslaught of cheap Chinese goods. These span everyday household and personal items to electronic gadgets and appliances, motor vehicles, light and heavy equipment, and construction materials like steel and cement.
Large manufacturing firms in the region have recently decided to fold up, like Sritex in Indonesia; Jinko Solar in Malaysia; and Subaru, Suzuki, and more in Thailand—all blaming cheap competition from China and steep US tariffs for their woes. Data show that not even the pandemic stopped Chinese imports from doubling in Thailand, Malaysia, and Vietnam since 2018 and jumping one-and-a-half times in Indonesia and the Philippines.
China’s share in our total imports expanded from 18.5 percent in 2016 to 25.8 percent in 2024, and further to 28.9 percent in January 2025. And the worst is yet to come. Indonesian economist and former trade minister Mari Pangestu warns that “we are about to be hit with a tsunami of Chinese goods” as Trump slaps China with extreme tariffs. Are we even anticipating and preparing for this after already seeing recent surges harm our own manufacturers? Our neighbors have announced anti-dumping duties on China imports. We can’t afford not to follow their lead, but we must also hunker down to do even more homework than we’ve managed to do before.
