US Trade Policy and SEA Markets: What Effects Does US Trade Policy Have on the South East Asia Market?

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Located far away and separated by the vast Pacific Ocean, the US and ASEAN are connected by investment and trade interests. The US, as a superpower, has significant influence over SEA markets; thus, its trade policy will have a major effect on the region’s economic landscape.

This year, the US is currently preparing for its election. With the uncertainties about who will win the contest and the possibility of major US trade policy shifts, countries around the world, including ASEAN countries, are closely monitoring the situation.

Rising concerns about escalating trade tensions between the US and China have made investors wary of volatility in SEA market shares. This is especially true given that SEA market shares on US imports remain heavily reliant on China.

So what can we expect from the future of the US and ASEAN trade and investment relationship in the future? What are the effects of global trade policy implemented by the winning candidate on SEA market shares? We’ll discuss more in this article.

US-China Trade Disputes and the Impacts on SEA Market

Understanding what to expect from the elected candidate’s global trade policy impact on the SEA market should be traced back to the historical context of US trade relations with China. The US and China have been in trade disputes for years, which began in 2018.

Under Trump’s administration, the US began imposing significantly higher tariffs on Chinese imports to force China to change its economic policies. His “America First” stance was the primary reason Trump implemented this policy, which was intended to protect domestic industries from a price war with Chinese products. 

The problem lies in the fact that most Southeast Asian countries rely on China for their market shares in the US. As a result, the US’s unfavourable stance toward Chinese imports poses negative impacts on the SEA market as well.

Are there any chances that this dispute will be resolved? It all depends on the winning candidate and the trade policies implemented, and the two major parties are known to hold opposing positions on this issue.

Responses From Major Parties

Since election day is just around the corner, knowing how the major parties view trade relations with China is important.  It helps you anticipate what will happen in the coming years based on which party’s candidate runs the administration.

Generally, it’s well known that the Republican Party is hostile to trade with China, while the opposite applies to the Democratic Party. According to a study, 42% of Republicans consider China an adversary, while only 17% of Democrats do.

Aside from deeming China an adversary, 67% of Republicans regard limiting China’s global influence as an imperative US foreign policy. Thus, if the only Republican nominee is re-elected, US-China trade tensions are likely to escalate, particularly with the proposed 60% tariff increase on Chinese goods.

The Positive Lights

Amid the turmoil of the US and China trade war and its potential impact on the SEA markets, opportunities remain and ASEAN’s chances to grow its shares in US imports are ripe. There are two main discourses surrounding this issue to highlight, including:

Diversification away from China and toward Southeast Asian markets

The main reason for US-China trade tensions is lower commodity prices, which US industries are struggling to compete with. At the same time, cheap commodities benefit businesses; thus, divestment to SEA markets is a strategic move, given the low labour costs.

With lower labour costs, Southeast Asian countries remain viable manufacturers. This led to direct trade with SEA markets enactment and resulted in ASEAN’s share increasing by 2.6% between 2018 and 2020, the same figure as China’s share declines.

Source: Ide-Jetro

Among other SEA countries, Vietnam is deemed the most beneficial and strategic region for trade and investment diversion. Its shares in US imports skyrocketed rapidly from just 1.9% in 2018 to 3.4% in 2020, while other countries remained below 2%.

The US-ASEAN Trade and Investment Facilitation Agreement (TIFA)

The US-ASEAN Trade and Investment Facilitation Agreement (TIFA), signed in 2006, encourages investment in Southeast Asian markets. This agreement aims to strengthen US-ASEAN cooperation in trade and investment relations, which ultimately reduces China’s influence as the middleman.

Years after its enactment, the TIFA has streamlined regulatory processes facilitating smoother trade between the US and SEA markets. If efforts are made and fostered, SEA market shares in US imports can continue to increase, despite the possibility of heightened US-China trade tensions.

The Future of US-ASEAN Trades

In the meantime, the future of US-ASEAN trade remains largely dependent on China’s share of US imports. This means that what comes next will be heavily influenced by the winning candidate’s global trade policy – with a Republican candidate likely to escalate trade restrictions with China by raising tariffs to 60%, thereby hurting SEA market shares.

On the contrary, the Democratic administration is likely to benefit China, and subsequently SEA market shares. The incumbent Joe Biden, who’s running for this year’s election, has expressed his desire for cooperation and collaboration with China, potentially thawing the tensions in years to come.

But nobody knows for sure who will be elected. Fortunately, the TIFA enactment is there to facilitate smoother US and SEA market trades. If its implementation is continued, SEA industries are poised to grow, creating job opportunities, increasing investment inflows, and fostering a positive investment environment.

Key Takeaways

The fact that US trade policy has a significant influence on SEA market shares on US imports makes it worth attention. This is especially true given the upcoming US election, with policy shifts being the primary source of uncertainty among investors in SEA industries.

Navigating the uncertainties can be challenging, but it doesn’t have to be done alone. Consulting investment experts like UOB Kay Hian are what smart investors do, which you can begin by subscribing to our newsletter or joining UOB Kay Hian’s Telegram channel.
In the end, continuing to invest is a wise move savvy investors make, even if the future of US trade policy remains uncertain. Make sure you invest in fundamental instruments to ensure long-term profitability – start with UTrade today!

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