ASEAN must deal with Trump’s tariffs ‘in the long run’ despite court rulings, says analyst

Key Concepts:

• Tariffs: Taxes imposed on imported goods.
• Executive Powers: Authority vested in the President.
• Trade Negotiation/Deal: Discussions and agreements between countries regarding trade.
• Reciprocal Tariff: Tariffs imposed by one country in response to tariffs imposed by another.
• Supply Chains: Networks of organizations involved in producing and distributing a product.
• Trade Diversion: Shifting trade from more efficient suppliers to less efficient ones due to trade agreements.
• Baseline Tariff: A starting point for tariff negotiations.
• Rule-Based and Market-Based Trade: Trade governed by established rules and market principles.
• Non-Tariff Barriers: Trade restrictions that are not tariffs, such as quotas or regulations.
• Rules of Origin: Criteria used to determine the country of origin of a product.
• Trade Remedies: Actions taken by a country to protect its domestic industries from unfair trade practices.
• Intellectual Property Rights: Legal rights protecting creations of the mind.
• Strategic Alliances: Cooperative arrangements between countries.
• Protectionism: Government policies that restrict international trade to protect domestic industries.
• ASEAN Resilience: The ability of the Association of Southeast Asian Nations to withstand economic shocks.

1. US Appeals Court Decision and Implications

• The US appeals court temporarily paused a lower court ruling that deemed President Trump's tariffs illegal.
• The significance of this is that it adds another level of uncertainty to trade negotiations and the potential trade deal Trump is seeking.
• This occurs midway through the 90-day pause initiated by Trump, further complicating the situation.
• The lower court ruling stated that the president had overreached his executive powers by imposing the tariffs.

2. Short-Term Economic Consequences for Southeast Asian Exporters

• ASEAN's trade is significantly dependent on the US, with nearly 20% of its trade involving the US.
• The US is the second-largest export market for ASEAN.
• Mitigating higher tariffs and trade diversion is critical for ASEAN, requiring the search for alternative markets and negotiation to reduce the impact of tariffs.
• Trump's baseline tariff of 10% could increase, as the goal is to raise revenue. The temporary pause could lead Trump to become more aggressive and raise the baseline further to extract more revenue.

3. ASEAN's Long-Term Strategy

• ASEAN aims to consolidate 80% of its trade based on rule-based and market-based principles.
• ASEAN seeks to expand markets and increase demand within East Asia, particularly China.
• Investments in infrastructure, the green economy, and the digital economy are crucial for ASEAN's growth.
• The goal is to create a baseline for ASEAN and consolidate 80-85% of trade based on rule-based and market-based principles.

4. Trump's Approach and International Trade Norms

• Trump's actions have abandoned rule-based and market-based trade.
• Without a rule-based system, there is no framework for countries to negotiate, undertake reforms, or open up markets.
• Trump's trade deals are not free trade agreements, as they lack elements like non-tariff barriers, rules of origin, trade remedies, and intellectual property rights.
• These elements are emerging in discussions between the US and Korea, including issues related to beef and rice.
• A rule-based system is essential for smaller countries to negotiate with larger countries.

5. Potential Future Scenarios and Regional Trade Ramifications

• ASEAN countries view the situation as a long-term issue, considering the trend of rising protectionism in the US.
• This trend includes Trump 1.0, Biden's strategic alliances, and Trump 2.0's tariffs.
• Whether the Supreme Court upholds the lower court's ruling or not, ASEAN sees this as an inherent aspect of US trade policy.
• ASEAN is designing policies to mitigate the impact and create resilience based on the given circumstances.

6. Notable Quotes

• "The significance of this is that it adds another level of uncertainty to the so-called trade negotiation or the so-called trade deal that Trump is looking for." - Sandre Tanavu
• "The key part of what Trump has done is not just the reciprocal tariff, it's completely abandon the rule base and market base trade itself." - Sandre Tanavu
• "Fairly we take that as a medium-term issue that we need to deal with rather than a short-run issue." - Sandre Tanavu

7. Synthesis/Conclusion

The US appeals court's decision to temporarily reinstate President Trump's tariffs introduces significant uncertainty into global trade, particularly for Southeast Asian exporters. ASEAN is responding by seeking alternative markets, consolidating trade within the region based on rule-based principles, and investing in long-term growth strategies. The abandonment of rule-based trade by the US poses challenges for smaller countries in negotiations. ASEAN views the rising protectionism in the US as a long-term trend and is designing policies to build resilience.