- Trump’s return is a headache for China, but this time anyone trading with the US is a target.
- Both China and the rest of Asia have a set of options to pursue.
- First, spread the cost of tariffs across various parts of the supply chain and end-consumer.
- Two, find ways to take Chinese products to the US through third markets.
- Three, deepen regional integration and improve trade ties with the non-US world.
Commentary: Trump’s world and Asia’s playbook in the coming years
Last week’s US elections, which delivered an emphatic victory for Donald Trump and the Republican party, have brought in a sense of déjà vu for Asia. Eight years ago, the region’s commitment to a global rules-based order and open trade was challenged by the surprising victory of Trump, who came to office with commitments to a trade war. Since then, through Trump and Biden, tariffs, restrictions on tech access, and scrutiny on investments have been ramped up progressively. But most of these were aimed at China, which, while being hurt by these actions, has the wherewithal to counter them to some extent.
Trump 2.0 comes with promises of a wider trade war, affecting not just China, but all countries who trade with the US. Trump’s campaign promises include installing a blanket tariff of 10% to 20% on all imports, with additional tariffs of 60% to 100% on goods brought in from China.
How would nations deal with this shock if followed through? The playbook is an obvious one, tried and tested over the past eight years:
First, divide the cost between supplier and buyer. Trade percolates through factories, traders, whole-sellers, and retailers of sizes large and small. There is plenty of empirical evidence from recent tariff measures that they are absorbed in bits and pieces through the supply chain and the end consumer. In some cases, they lead to near-shoring and on-shoring, although it is not clear if that leads to benefits to US consumers in terms of better prices or jobs. Further supply chain fragmentation, pressure on margin, higher retail prices, are all on the table.
Second, find ways to take Chinese goods to the US without paying the highest tariffs. Solar panels, for instance, find their way to the US via third countries. Another case in point is pharmaceutical drugs. The US may be keen to reduce its dependence on Chinese pharmaceuticals, and buy from elsewhere, India, for instance. Four out of ten prescriptions filled in the US in 2022 were supplied by Indian companies, and Indian companies supplied 47% of all generic prescriptions filed in the US. But where does the bulk of India’s active pharmaceutical ingredients come from? China.
Third, invest more in non-US markets. US is the largest economy in the world, but China is not far behind, while the rest of the world offers plenty of opportunities. Asian economies will be compelled to deepen regional integration and improve market ties with Europe, Middle East, Africa, and Latin America. Trump’s trade war will reshape the world, but it doesn’t have to be a so-called zero-sum narrative at the expense of Asia.
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