Can Trump reroute Asia’s trade?

In the whirlwind of President Donald Trump’s second term, trade policy has once again taken centre stage, with Asia bearing the brunt of his aggressive tariff-driven strategy. Since his “Liberation Day” announcement on 2 April, Trump has pushed a “reciprocal” tariff framework, threatening steep levies on nations with trade surpluses unless they strike deals with the US. The approach has yielded mixed results, with Vietnam and Indonesia securing preliminary agreements, while heavyweights like Japan and China face ongoing uncertainty. Meanwhile, the deadline for what nations can expect as the 1 August tariff deadline looms for all but China, which has 12 more days to finalise hers (12 August).Southeast Asian countries bearing brunt of Trump’s tariffsVietnam was the first Asian nation to secure a trade deal with the Trump administration, announced on 2 July. The agreement reduced the proposed 46% tariff on Vietnamese exports to a 20% flat rate but with a twist, namely a punitive 40% levy on goods deemed transshipped from China, so that they would not be evading US tariffs on Chinese goods.While Vietnam would now have a much bigger incentive in increasing the local content of its goods so as to avoid such punitive tariffs, the reality is that it will not be easy, as Vietnam has massively increased its dependence on Chinese intermediate goods, much more than Indonesia and most countries of Southeast Asia. The closest case to Vietnam is actually Cambodia, where one may expect a similar deal with the US, i.e. higher tariffs on transshipped goods. Beyond agreeing on reducing dependence on China, Vietnam also committed to tariff-free access for US goods, including large-engine cars.Indonesia followed suit on 15 July, with Trump announcing a deal that lowered the threatened 32% tariff to 19%. The agreement, negotiated directly between Trump and Indonesian President Prabowo Subianto, opens Indonesia’s market of over 280 million people to US goods, with commitments to purchase US$15 billion in US energy, US$4.5 billion in agricultural products, and 50 Boeing jets.There is much less clarity as to whether a higher tariff on transshipment from China will also be applied to Indonesia, but the question is much less important than for Vietnam, as Indonesia is much less integrated in China’s supply chain, other than upstream, with its commodities being exported to China.Both Vietnam’s and Indonesia’s deals show the way for what might be coming for the rest of Asia. Trump is clearly focused on Southeast Asian nations reducing their reliance on Chinese supply chains. Vietnam’s transshipment clause and Indonesia’s hefty purchase commitments signal a broader US aim to reshape regional trade dynamics and possibly isolate China economically, but that will be easier said than done. US allies not sparedMoving forward to the key missing deals, Japan and South Korea, key US allies, come to mind. On 7 July, Trump announced 25% tariffs on both nations’ exports, effective 1 August, unless deals are reached. Both countries are heavily dependent on the US, not only for security but also economically, as the US is by far their largest export market.  Both countries’ recent elections have created additional hurdles.In the case of Japan, the upper house election on 20 July has significantly complicated US-Japan trade negotiations as the ruling Liberal Democratic Party (LDP), with its coalition partner, Komeito, suffered a substantial defeat, losing their majority and leaving Ishiba leading a weakened minority government with a very low approval rate.A potential leadership change or further weakening of Ishiba’s position could stall negotiations, as a new prime minister or a reshuffled government would need time to establish a coherent trade strategy. The US has expressed concerns about delays in tariff talks if Ishiba steps down, making it harder for Japan to present a unified front in high-stakes talks with the Trump administration.So far, Tokyo has offered to buy more US energy and defence equipment but resists removing all tariffs, particularly the baseline 10% US levy on imports. South Korea, meanwhile, is accelerating talks but faces challenges due to Trump’s additional industry-specific tariffs, such as 25% on cars and 50% on steel.Comprehensive deal with China not likely soonFinally, China’s situation is unique, with a preliminary tariff truce agreed upon in June 2025 in Geneva and, reconfirmed in London on 11 July, giving Beijing until 12 August to finalise a deal. The framework rolled back certain retaliatory measures — restoring US access to Chinese rare earth minerals and lifting key export controls on high-end chips — but left most major disputes unresolved. Trump’s focus on transshipment penalties, as seen in Vietnam’s deal, signals his intent to curb China’s use of Southeast Asia as a backdoor to US markets, which China clearly opposes.Given US-China long-term strategic rivalry, it is really hard to imagine that a comprehensive deal will be reached by 12 August. The most likely outcome will be that the existing key challenges for co-existence (rare earths from the US side and AI-related technology from China’s side) are ironed out. At the same time, the US’s push to carve out more space in Southeast Asia while trying to isolate China will be hard, if not impossible, as China has become key in the Asian supply chain.Finally, for nations like Malaysia, Thailand, Cambodia, and others that received tariff letters on 7 July, the stakes are high. Malaysia faces a 25% tariff, Thailand and Cambodia 36%, and Laos and Myanmar 40%, reflecting their varying trade surpluses and reliance on US markets. These countries, many of which are ASEAN members, are caught between US demands and their deep economic ties with China, which accounted for US$900 billion in trade with ASEAN in 2024 — double the US total.Thailand and Malaysia, major manufacturing hubs for electronics and textiles, are particularly vulnerable. Cambodia, a poorer nation reliant on garment exports, faces severe economic fallout from a 36% tariff, with industry leaders expressing shock at the scale.India, another key player, is reportedly close to a deal but faces sticking points over agricultural market access and import rules. Unlike Southeast Asian nations, India’s domestic demand-driven economy and geopolitical leverage may allow it to negotiate more favourable terms, but it is taking much longer than expected. At the same time, this is probably one of the most consequential deals since India is the only country which has the size and the potential to create an alternative supply chain to that of China.All in all, Trump’s tariff strategy is a high-stakes gamble, which could potentially change the dynamics of global supply chains. So far, though, the fact that Trump’s deals with Vietnam and Indonesia appear transactional will not help the US in re-attracting the interest of Asian nations. *This is a reprint. This article has been published by ThinkChina./economy/can-trump-reroute-asias-trade