Southeast Asian trade accelerates as companies race against Trump tariffs

Trade surged in Southeast Asia's electronics manufacturing centers in the runup to the U.S. presidential election as customers prepared for disruption in the event of a Donald Trump victory.

Exports of electronic parts from Thailand saw a historic 30% increase in October, a month before Trump was elected to a second term, while overall shipments to the U.S. rose 25.3%. Meanwhile, imports of electronics and components from Taiwan and China climbed by 42% and 18%, respectively, between January and October compared to the same period last year.

Similarly in Malaysia, shipments to the U.S. expanded by 19.2% in October, the highest of any export destination. Imports from the U.S. jumped 47.6% in the month, the most of any source, followed by Taiwan at 30% and China at 15%. Most were electronics parts and machinery.

In Vietnam, exports to America grew at an annualized 24.2% in the January to October period. Electronics, computers and components led the export rise, up 26.1%. Imports from China were up 31.6%.

The trade rush indicates so-called front-loading by manufacturers in Southeast Asia and their customers in the U.S., as all three countries would be in the crosshairs of a Trump threat to impose tariffs of at least 10%. Vietnam ran the third-largest surplus in the world with the U.S. in 2023, with Thailand and Malaysia ranking 12th and 13th. Vietnam and Thailand count the U.S. as their largest single export market this year, while for Malaysia it ranks second after neighboring Singapore.

In the short-term, front-loading will add 0.1% to Thailand's gross domestic product in the fourth quarter, possibly carrying over to the first and second quarters of 2025, said Burin Adulwattana, chief economist at Kasikorn Research Center in Bangkok.

The acceleration in trade is being felt in Singapore, Southeast Asia's largest shipping hub. Though it has not seen a significant rise in U.S.-bound freight, a representative of a Singapore-based logistics company said, "We have been receiving more inquiries in recent weeks if we could bring forward shipments."

Singapore's purchasing managers' index in electronics gained 0.2 points from October to November. The production ramp-up "serves as a precautionary measure given significant uncertainty with regards to the timing, extent and scope of Trump's proposed tariffs on U.S. imports," said Jester Koh, associate economist at United Overseas Bank.

A logistics company in Vietnam said customers were also front-loading shipments to the U.S. West Coast to avoid a potential strike by eastern and Gulf coast port workers, whose union has until Jan. 15 to ratify a pay agreement.

Higher imports into Thailand of computer components, machinery parts and electrical circuit boards went into supporting local production for export, according to the kingdom's Trade Policy and Strategy Office.

"We saw high imports from China and Taiwan because the new capacity is not ready yet. Once the component parts are relocated to Thailand or Vietnam and integrated with our supply chain, imports will slow," said Chaicharn Charoensuk, chairman of the Thai National Shippers' Council.

Vietnam, Thailand and Malaysia were among the biggest beneficiaries as Chinese companies diverted supply chains to avoid tariffs during the first Trump administration. From 2018, the first year of the trade war, Thai exports of electronics components to neighboring Vietnam rose by 68% to feed into local factories built by Chinese, Taiwanese and South Korean companies, according to Krungsri Research.

Increasing the mix of locally made parts in U.S.-bound products will be critical for Southeast Asian governments looking not only to skirt Trump's tariffs, but also to protect domestic manufacturing. In Thailand, a 24.1% growth in imports of integrated circuits from China was offset by a 22% contraction in local production of those electronics parts, according to Kasikorn Research Center.

On top of Trump's blanket 10% tariff threat, Southeast Asia risks anti-circumvention measures from the U.S. if China continues to "reroute" goods through the region, said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries.

Saddled with a slowing economy, China is increasingly relying on exports to emerging markets like Southeast Asia to prop up domestic manufacturing. "Even if tariffs [from the U.S.] come through, export surges are going to continue for a little while," said Charles Austin Jordan, senior research analyst at Rhodium Group, a U.S. research firm.

But for Trump's trade advisers, "long-arm tariffs and more granular rules of origin are on the table," said Jordan. "They're going to be tracking that there was a significant transformation of a product to be considered 'Made in Vietnam' to address the transshipment issue."

Source: Nikkei Asia