Trade in Southeast Asia under Trump

Southeast Asia appears vulnerable to Donald Trump's threat of universal tariffs and a renewed trade war with China. Five of the region's six largest economies run trade surpluses with the United States. According to Nikkei Asia, all is not lost for Southeast Asia. Exports and economic growth would take a hit in the short term, but the region can reap rewards from trade diversion and substitution and might even take a tougher stance against Chinese firms' anticompetitive practices.

Geopolitically neutral, the area saw an increase in gross trade with both China and the US between 2017 and 2020 during the first Trump presidency. Vietnam, Indonesia, Malaysia and Thailand won big as companies from China, Japan, South Korea, Taiwan and the US relocated from China or duplicated their manufacturing bases in Southeast Asia to avoid US tariffs. 

Here's what you need to know: 

What is Trump's tariff threat?

The objective of Trump's stated trade policy is to return manufacturing jobs to the US and disentangle its supply chains from China. Trump and his advisers view China's trade advantage as unfairly derived from currency manipulation, intellectual property theft and forced technology transfers. 

During his first term, Trump used executive powers to impose tariffs of up to 25% on US$250 billion worth of electronics, machinery and consumer goods imports from China. Beijing retaliated with similar measures against US agricultural, automotive and technology exports. 

Now, Trump has proposed a 60% duty on all Chinese goods entering the US and tariffs of up to 20% on imports from everywhere else. That would be done with a mix of executive and legislative tools.

How bad could it be for Southeast Asia? 

Nearly 40% of Cambodian exports go to US, the largest exposure in ASEAN, in terms of proportion of total exports, followed by Vietnam at 27.4% and Thailand at 17%, according to Oxford Economics, putting all three at particular risk. Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said Thailand's economy might take a 160.5 billion baht ($4.6 billion) hit if Trump follows through on his promises.

Vietnam has the fourth-largest trade surplus in the world with the US The imbalance grew rapidly as Chinese, Taiwanese and South Korean firms used Vietnam to bypass Trump-era tariffs. Vietnam's fortunes could just as quickly turn, especially if the US continues to classify it as a "nonmarket economy," which tends to entail higher tariffs. 

Uncertainty about Trump's tariffs could prompt firms to pause or stop investment plans in Southeast Asia. US companies accounted for about half of the US$9.5 billion in fixed asset investments in Singapore last year, according to the city-state's Economic Development Board. Prime Minister Lawrence Wong was quick to remind Trump in a congratulatory letter that the US has maintained "a consistent trade surplus" with Singapore. 

Any blow to the Chinese economy will spill over to ASEAN countries that depend on Chinese consumption, export demand and tourism. Weaker appetite for Chinese goods will affect Southeast Asian suppliers of inputs to Chinese producers. Indonesia, Southeast Asia's largest economy, would suffer most because of its 24.2% export exposure to China, mainly of commodities.

Chinese exporters unable to send their wares to the US might divert them to Southeast Asia, where governments have fielded complaints from local producers hurt by dumping of metals, textiles and consumer goods. 

What is the upside for Southeast Asia? 

Southeast Asia's current manufacturing boom began because of the trade war. Analysts expect that, in time, trade substitution and diversion will outweigh the hit to growth. 

"We think an even greater pushback on China could drive more supply chain diversion, with Chinese businesses trading and investing more within Asia," said Jayden Vantarakis, head of ASEAN research at Macquarie Capital. 

The electric vehicle factories that some Southeast Asian governments aggressively courted could provide an economic buffer. "There is also EV demand growing outside the US, so I think there may actually be a net benefit to Indonesia. What will happen is that smaller countries that are trying to become carbon neutral, especially since petrol prices are increasingly expensive, will try to take over the supply and buy more electric cars," said Sumit Agarwal, professor at the National University of Singapore Business School. 

Trump's promised tariffs may provide ASEAN governments with the impetus to impose antidumping tariffs on Chinese goods, as Thailand did with rolled steel this year. Tighter US rules of origin could also give governments an opportunity to ensure that more high-value parts production and assembly are done locally. 

What will happen to Southeast Asian currencies and markets?

Trump's tariffs may ease the pressure on Southeast Asian central banks to further loosen monetary policy.

"Essentially, Trump's victory is inflationary for the world due to his planned tariffs, so the global monetary normalization or easing cycle likely won't be as sharp as previously thought, including in the Philippines," said Miguel Chanco, chief emerging Asia economist at Britain-based Pantheon Macroeconomics. 

Chanco told Nikkei Asia that Southeast Asian currencies will not strengthen as previously expected, due in part to the markets re-pricing the pace of easing by the US Federal Reserve and therefore continuing dollar strength. 

Among the six major Southeast Asian economies, the Thai baht and Malaysian ringgit have been the worst performers since Trump's victory, declining 3.2% and 2.9%, respectively, against the US dollar through Wednesday. 

Thai securities house InnovestX recommended stocks that will benefit from the strong dollar and weak baht. These include companies with significant export revenue like CP Foods and Delta Electronics, or which are involved in tourism, such as Airports of Thailand, property developers and hoteliers. 

How should Southeast Asian economies prepare? 

Governments are already taking steps to reduce their overreliance on either the US or China by deepening relationships with other countries and regions, and stressing their neutrality.

The Philippines sees its trade agreements with the likes of South Korea as a buffer against US shocks. "We want to see many more of these ... bilateral and multilateral agreements, so that we can open up many more opportunities," said National Economic and Development Authority Secretary Arsenio Balisacan. 

Former Thai Prime Minister Thaksin Shinawatra has suggested, governments could do more to support local companies investing in the US and other diversified manufacturing bases, as Japan did in 2020 with a US$2 billion program known as the "China exit subsidy." 

That support could include reducing operating and logistics costs, providing trade risk insurance and removing barriers to trade. Amending relevant laws to allow transshipment at Laem Chabang port, Thailand's main export channel, would be an invaluable boost to Thai exporters, said Kongrit Chantrik, executive director of the Thai National Shippers' Council. 

Southeast Asian economies should also focus on building resilience by strengthening intra-ASEAN trade, according to Jaideep Singh, analyst at the Institute of Strategic & International Studies, Malaysia.

"There should be efforts to promote economic integration through reduced non-tariff measures, improved trade facilitation and better coordination of regional value chains," he said.

Similarly, countries like Vietnam could "win brownie points" from Trump by buying aircraft engines or liquefied natural gas from the US, according to VinaCapital chief economist Michael Kokalari. 

But he added that fears are "hyperbolic" about trade under Trump, who visited Vietnam twice in his first term. There are no "significant reservations from American consumers to purchase 'made in Vietnam' products," he wrote. On the contrary, the US cannot re-shore everything, so "Vietnam may be viewed as helpful in [weaning] the US off of low-end China-made goods."

 

Iranian statement on the release of assets

Following the release of Iran’s funds that had been held in South Korea due to the US sanctions, the Iranian Foreign Ministry released a statement about the money and the prisoner swap with the United States.

“In order to achieve the rights of Iranian nationals all over the world as well as Iranians residing in the US and within the framework of an independent process, five Iranian citizens who were illegally prosecuted by the US judicial system due to their normal business activities were released and returned to their families,” the ministry said in the statement. 

“Prior to that, the Iranian assets in South Korea - which had been frozen due to the US pressures, making it impossible to use them for years - were unlocked thanks to diligent pursuit of the issue by the Foreign Ministry and Central Bank of the Islamic Republic of Iran. Through a financial and banking process that lasted several weeks, the assets were transferred to the accounts of Iranian banks in Qatar,” the statement added.

It further continued, “These assets are under the control of the Central Bank of the Islamic Republic of Iran and will be used at the discretion of relevant Iranian authorities and based on the country’s needs and priorities.”

“Undoubtedly, the policies and actions of different administrations in the US in preventing Iran’s free and legitimate access to its financial resources in other countries are illegal and inhumane,” read the statement.

“Nevertheless, the illegal move of the US to abuse the international banking system and put pressure on other countries to limit Iran’s access to its assets does not in any way mean that the governments where these assets are kept have no responsibility in this regard, and those governments must be held to account for their unjustified move to comply with the illegal demands of the US government, the financial losses inflicted on Iran as a result of the long-term freezing of Iranian assets and its humanitarian consequences, especially during the Covid-19 pandemic,” it noted.

The ministry also stressed, “The Iranian people will never forget that. Even during the peak of the Covid-19 pandemic the US regime, while ignoring the health emergency and humanitarian issues as well as repeated requests by the UN secretary general and human rights officials, denied Iran access to its financial resources in South Korea.”

“The Islamic Republic of Iran hereby thanks the government of Qatar for playing an effective role in transferring the assets of Iran and exchanging the prisoners. We also appreciate the valuable efforts of the Sultanate of Oman to advance this process and also the Swiss government’s cooperation and assistance in facilitating all this,” the Foreign Ministry concluded.

Five Iranians who had spent years in US jails were released on Monday in a prisoner swap between Tehran and Washington mediated by Qatar.

“After a successful team effort, five innocent Iranian compatriots in American prisons will be free today and two of them will enter Tehran via Doha,” Kazem Gharibabadi, Secretary General of Iran’s High Council for Human Rights, wrote on his X account on Monday.

“The High Council for Human Rights, alongside the government and the judiciary, will remain determined to uphold the rights of Iranians abroad,” he added.

Earlier Monday, Iranian Foreign Ministry spokesperson Nasser Kanaani stated that two of the inmates will be returned to Iran, one will join his family in a third country, and two will remain in the United States.

The process of implementing an agreement with the US on the release of Iran’s assets as well as a prisoner swap has progressed at a favorable pace, said the spokesman.

Back in August, the United States and Iran agreed to liberate five American prisoners in exchange for the release of a number of Iranians held in the US and access to around $6 billion in Iranian oil revenues in South Korea.

It is worth noting that the US is to blame for all moratoriums made in such talks because it had illogically and futilely resisted all legitimate demands by Iran. The American officials thought they had the upper hand in the talks and gave the cold shoulder to any proposals.

 

Two global giants move their regional headquarters to Saudi Arabia

iHerb, a global leader in health and wellness, and CJ Logistics, a leading Asian logistics company, moved their regional headquarters to Saudi Arabia. This is part of relocating regional headquarters of several global companies to Riyadh. The move reinforces the strength of the Saudi economy, and expresses optimism about the recent economic reforms, which are expected to reflect positively on investors.

The US company, iHerb for health and wellness products and the Korean CJ Logistics, a world leader in logistical solutions, finally chose Riyadh as the hub of their operations in the Middle East and Africa. This is in response to the growing demand from consumers, in addition to the attractiveness of the business environment in the Kingdom. The periodic meetings held by the E-Commerce Council have contributed tremendously to attracting global companies to the Saudi capital.

President of the General Authority of Civil Aviation (GACA) Abdulaziz Al-Duailej presented CJ Logistics Company the license to practice its commercial business in the Kingdom. The ceremony was held in the presence of Minister of Commerce and Chairman of the E-Commerce Council Dr. Majed Al-Qasabi, Korean Ambassador to Saudi Arabia Park Joon-yong, CEO of CJ Logistics Sin Ho Kang, and Chief Operating Officer of iHerb Miriee Chang.

Speaking on the occasion, Al-Qasabi said that the influx of international companies to conduct their commercial business in the Kingdom comes in the context of the growing interest in the promising opportunities available in light of the Saudi Vision 2030, which pays attention to the development of the e-commerce business system, and its important role in the Saudi economy, especially in view of the fact that the Kingdom is among the top 10 developed countries in this sector.

Al-Qasabi praised the role of the E-Commerce Council as a platform for constructive dialogue and cooperation between the private sector and government agencies, which paves the way for other initiatives and achievements.

For his part, GACA President Al-Duailej stated that the integrated logistics zone is an evidence of the achievements of the national strategy for the aviation sector within the framework of Saudi Vision 2030, which confirms the strengthening of the Kingdom’s position as a global logistics center linking three continents and attracting the largest companies in the world and the region.

He pointed out that the integrated logistics zone is characterized by regular procedures that contribute to attracting investments by allowing foreign investors to establish companies and own them 100% in addition to facilitating the requirements and procedures for registering investments in the zone.

CEO of CJ Logistics Sin Ho Kang said, “The e-commerce market in Saudi Arabia is one of the highest growing markets, in addition to the geographical location that connects markets in Africa and Europe. “The company will employ all modern technologies in the new center to lead logistics services related to e-commerce in the region,” he added. CJ Logistics is the oldest and largest parcel delivery firm in South Korea.

 

Asian LNG spot prices slip to 21 month low

Asian spot liquefied natural gas (LNG) prices remained flat this week at the lowest level since July 2021 on muted demand and solid inventories in China, Japan and Korea.

The average LNG price for May delivery into northeast Asia was US$12.50 per million British thermal units (mmBtu), unchanged from the previous week, industry sources estimated.

Prices have fallen 55% year-to-date and more than 82% from the August 2022 peak of US$70.50/mmBtu.

"North Asian demand drivers are still errant, even for off- season speculative cargos. Pricing seems to be driven by sentiment correlated with euro hub markers," said Toby Copson, global head of trading at Trident LNG.

"I expect we will trade in this narrow range while we sit in shoulder season - until some impetus emerges for utilities as Chinese and Korean storage seems topped up," he added.

Tobias Davis, head of LNG Asia at brokerage Tullett Prebon, said the market has seen fresh bouts of demand from Thailand's PTT which lifted around 10 cargoes at US$12-US$13/mmBtu and is tendering for more volumes for May-September, while the Philippines secured its first LNG import cargo from Vitol and Indian end-users continue to pick prompt volumes.

"Prices below US$13/mmBtu continue to deter China, which remains quiet and on the sidelines with opportunistic bids, while healthy storage in Japan and Korea continue to keep that all important end-user demand at bay," Davis added.

Europe is still a favourable destination for cargoes, despite a series of strikes in France that have reduced the country's LNG imports by around one million tons in March, as cargoes have been diverted to neighbouring terminals.

Ken Kiat Lee, senior analyst at consultancy firm FGE, said that despite Europe's colder start to the shoulder season - the months after winter and ahead of summer - prices have continued to trade sideways with most markets sitting on above-average gas inventories.

S&P Global Commodity Insights assessed its daily north-west Europe LNG Marker (NWM) price benchmark for cargoes delivered in March on an ex-ship (DES) basis at US$12.374/mmBtu on April 5, a US$1.90/mmBtu discount to the May gas price at the Dutch gas TTF hub, according to Allen Reed, managing editor of Atlantic LNG.

Reed said that the spread between European gas and LNG prices hit a multi-month high on April 04, at a US$2.20 discount to Dutch gas prices for May - and was largely driven by strikes at French LNG terminals.

LNG spot freight rates have fallen amid softer gas prices and potential sub-charters entering the market, with Atlantic rates at US$42,000/day on Thursday and Pacific rates at US$62,750/day, according to Edward Armitage, an analyst at Spark Commodities.

 

Will US pull troops out of Afghanistan?

A question is often asked by the citizens of countries directly or indirectly affected by the Proxy War in Afghanistan; will United States pull out its troops occupying the country after 2014? 

The overwhelming perception is, it will not. To understand this it is necessary to explore reasons why the country is being occupied under the disguise of Nato and ISEAF.

One point is very clear that the objective was not to liberate Afghanistan from the control of USSR or Taliban but to occupy it for economical and political reasons. Presence of Al-Qaeda was not an excuse for attack. Iraq was also not attacked because of Al-Qaeda but oil. Neither Afghanistan nor Iraq had attack the world trade center.

One could find two possible reasons for occupying Afghanistan; valuable metals and geopolitics. Studies conducted by USSR showed that trillions of dollars worth precious and rare metals are present in Afghanistan.

Being the super power United States maintains its military dominance by brining countries all around the world under its hegemony to combat enemies. Afghanistan has an important place in the US foreign policy due to common borders with Pakistan, Iran, China and many oil and gas rich Central Asian countries.

After the Islamic Revolution Iran is being projected the biggest threat for the world, especially Arab monarchies and more recently for its nuclear program denouncing US hegemony. United States is planning for the ultimate day when troops will be deployed in Iran to takeover its nuclear assets. It needs an outpost near Iran and Afghanistan is the ideal country.  The two countries share a long mountainous border, which is virtually impossible fully monitor and defend.  

China is the second most powerful superpower, which is likely to surpass the gross domestic product of the United States by 2020 and become world’s strongest economic superpower.  United States already has outposts in Taiwan and South Korea, Afghanistan gives them a third root of attack should it be necessary.

Afghanistan was a hostage of the Cold War. The United States supported Pakistan and the USSR patronized Afghanistan and India against Pakistan. After Islamic Revolution in Iran in 1979 the Soviet leadership anticipated that in order to compensate its defeat in Iran the United States might seek to expand its influence in Afghanistan.

The USSR believed that getting control over Afghanistan could give it a perfect foot hold in South Asia and the Middle East. It would have access to a new ocean and proximity to the vast oil riches of the Middle East. There are no warm water ports in Afghanistan, but getting control over the Khyber Pass, an ancient trade route to China on the East and one step closer to Iran and Turkey on the West and Pakistan on the South, all with warm water ports.

With the disintegration of USSR, despite having tons of lethal arsenals and China focusing on its economy, the sole surviving super power seems too ambitious in establishing its hegemony in South Asia and MENA and Afghanistan appears to be the most ideal outpost. Therefore, probability of end to the US occupation of Afghanistan is hoping against the hopes.