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Trump’s trade war with China could put Southeast Asia in the firing line

A pedestrian walks past a sign for a money exchange in Tsim Sha Tsui district, Hong Kong, China

A pedestrian walks past a sign for a money exchange in Tsim Sha Tsui district, Hong Kong, China, 13 August 2015. Photo: EPA/JEROME FAVRE

During his first day on the job, US President Donald Trump signed an order withdrawing the US from the Trans-Pacific Partnership, a free trade deal involving several Southeast Asian nations that was to be a legacy of the outgoing Obama administration.

While this presents an opportunity for Beijing to extend its reach in Asia and push its 16-nation Regional Comprehensive Economic Partnership trade deal, Chinese leadership is likely not completely at ease. The Trump administration’s attitude toward China has been testy at best, with incoming secretary of state Rex Tillerson decrying Chinese territorialism in the South China Sea, telling senators last week that the US was “going to have to send China a clear signal that, first, the island-building [in the South China Sea] stops. And second, [Chinese] access to those islands also is not going to be allowed”.

Throughout Trump’s presidential campaign, he threatened to impose heavy import tariffs on Chinese goods and accused Beijing of manipulating its currency to benefit Chinese exporters. With economic ties between the global hegemons beginning to strain, many experts have feared a trade war between the US and China, where the two countries could attempt to hamstring each other’s economies by imposing damaging tariffs or trade restrictions.

China, whose exports to the US reached $483 billion in 2015, would suffer from a trade war, but so would the US. Cheap Chinese imports would be off the table, sending prices at mega retailers such as Wal-Mart skyrocketing. And Southeast Asia, whose economies rely on the economic prosperity of the world’s two largest superpowers, would see its own fallout.

“While President Trump’s ire was directed at China, Southeast Asia couldn’t escape the negative fallout from a possible Sino-US trade war,” said Winter Nie, regional director of Southeast Asia and Oceania at the International Institute for Management Development in Switzerland. “The reason is simple: Southeast Asia is among the largest trading partners to both China and the US, and is an integral part of an elongated supply chain, a complicated eco system.”

Although it is possible that manufacturers could benefit in the long-term from production moving from China to Southeast Asia, many countries also export raw materials to China – components used in the construction of computers and smartphones, for example – which could be hit in the short-term. A trade war damaging China’s economy would make it difficult for Southeast Asia to profit from exporting these goods to China, according to Carlyle Thayer, an expert on Southeast Asia at the University of New South Wales.

“Obviously both American and Chinese companies that export to each other would be the first victims,” he said. “But companies in Southeast Asia that export component parts for assembly in China would be hurt by the downturn in Chinese exports. As Chinese growth slowed, companies that export raw materials would also see their export volumes decline.”

Despite a war of words being waged on both sides of the Pacific, President Trump would still need to overcome congressional checks and balances to wage any sort of war against China, be it military or economic.

Oliver Turner, a lecturer in international relations at the University of Edinburgh, said that while he does expect the US to enact some sort of punitive economic measures against China, at this stage a trade war remains a distant possibility. The more likely outcome of Trump’s threats regarding trade, he said, is that Southeast Asian nations no longer see the US as a regional hegemon, instead dropping a caustic and unpredictable Trump-led government for a more secure paternal figure in Beijing.

“I would say that in the broadest sense Beijing is ready to take advantage of Trump’s notoriously unpredictable temperament and inexperience,” Turner said, “and of the nervousness he has instilled in others, to further its own agenda of ensuring that China attains the status of a respected global leader.

“For the most part, Obama maintained good relations with China,” he added. “If those relations soured now, for no apparently justifiable reason, Trump would probably be cast as the primary villain, and Beijing would likely increase its efforts to present itself as Asia’s more reliable leading power.”

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