On April 2, President Trump imposed significant tariffs targeting Chinese exports and several ASEAN nations. These measures aimed to curb practices of disguising product origin, where Chinese products are rerouted and relabeled through third countries to disguise their Chinese origin to evade trade restrictions.
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Why 4 out of 7 Highest Tariffs are ASEAN Countries?
The U.S. introduced a baseline 10% tariff on all imports, with additional country-specific tariffs. Notably, China faced a new tariff of 34%, plus the existing 20% from the past two months to reach a cumulative tariff of 54%, while ASEAN nations such as Cambodia, Laos, Vietnam, Myanmar, Bangladesh and Thailand were subjected to tariffs ranging from 36% to 49%. These measures were intended to penalize countries allegedly facilitating the disguise of Chinese goods to bypass U.S. tariffs.
Disguising Product Origin: China’s Strategy to Evade Tariffs
In response to escalating trade barriers since President Trump’s first term, Chinese manufacturers have increasingly relocated production to neighboring ASEAN countries. This strategy involves setting up factories or partnering with local firms in countries like Vietnam, Thailand, and Cambodia to process and export goods labeled as originating from ASEAN nations. Such practices aim to exploit preferential trade agreements and lower tariffs applicable to ASEAN nations.
Will the New Tariffs Push ASEAN Countries Closer to China?
No, these ASEAN countries export to the U.S. to advance their economies, a strategy mirroring China’s own approach. China and ASEAN are not a buyer-seller pair like the U.S. and ASEAN; instead, they are locked in a seller-seller competition for the same export markets. Unless ASEAN can find a replacement market for the U.S., such as China opening its domestic market to ASEAN, they are unlikely to shift closer to China. However, if China were willing to open its market, it would have done so since 2001 when it joined the WTO, potentially avoiding the U.S.-China trade war that began during President Trump’s first term. As a result, ASEAN and China will likely compete for the remaining global markets outside the U.S. for their exports.
ASEAN is less likely to compete successfully with China due to China’s more advanced and mature manufacturing and logistics infrastructure. Consequently, ASEAN countries are more inclined to compromise with the U.S., lowering tariffs in exchange for access to the American market. One expected compromise is increasing trade barriers between ASEAN and China, ensuring ASEAN does not serve as a hub for disguising Chinese exports.
In fact, in January, Vietnam’s Prime Minister Pham Minh Chinh expressed his willingness to visit President Trump’s Mar-a-Lago residence in Florida and “golf all day long” if it benefits his country, a clear indication of ASEAN’s eagerness to maintain strong ties with the U.S.
Hong Kong’s Role in Strengthening China-ASEAN Trade Relations
In 2024, Hong Kong’s Chief Executive John Lee Ka-chiu undertook official visits to Vietnam, Cambodia, and Laos (yellow highlights on the chart) to strengthen economic ties and explore new cooperation opportunities under the Belt & Road Initiative. During his visit to Laos in 2024, Mr. Lee met with key government officials and witnessed the signing of multiple memoranda of understanding covering areas such as customs collaboration, investment promotion, and education exchange.
At the time, the internet ridiculed John Lee Ka-chiu, the leader of an international financial center, to solicit business from the developing countries rather than its usual Western developed nations. The reason behind why he did should now be crystal clear.
Surge in Hong Kong’s Exports to Vietnam
Hong Kong’s exports to Vietnam have seen remarkable growth in recent years. In 2023, exports reached $14 billion, up 40% from 2019. Approximately $10 billion of these exports consist of electrical and electronic equipment. Notably, Hong Kong does not manufacture these products domestically; they are predominantly produced in mainland China.
During President Trump’s first term, he signed “The President’s Executive Order on Hong Kong Normalization” on July 14, 2020, ceasing to view Hong Kong as a special city from China, a position it had maintained for 150 years, especially during the British colonial era prior to its handover to China in 1997.
Why China is the only Country to Retaliate So Far?
Yesterday, on April 6, President Trump advisers stated that more than 50 countries have reached out for tariff negotiations, while EU offered to remove of all industrial tariffs as part of a “zero-for-zero” deal. However China swiftly retaliated against the U.S. with its own 34% reciprocal tariff on all U.S. export to China. So far, China is the only country to do so. Why? While many may perceive that China is too pride to compromise, which can holds some truth, a more pragmatic explanation is that China may have realized that all the U.S. want is to decouple from China as we pointed out in the article below one month ago, and form a fair and democratic supply chain without China. Backing down would serve little purpose for Beijing. The only way to make all this peril go away is to ensure the Republican loses the midterm elections two years from now. To achieve this, China would need to inflict maximum economic pain on the U.S., making its swift retaliation logical in this broader geopolitical chess game.
By the way, the son of China’s former Vice Premier Liu He, who also signed a trade deal with President Trump in the White House in 2020 in the photo below, is currently under investigation. This is a strong warning signal for those high-ranking officials in China who still want trade talks with the U.S. this time around.
Trump Threatens to Add Another 50% Tariff on China
Today, on April 7, President Trump gave Beijing one day to withdraw its retaliation, or face an additional 50% tariff to a staggering total of 104%. China will unlikely to back down for the reasons mentioned above. Furthermore, If China continues purchasing Venezuelan oil, an additional 20% secondary tariff will be imposed.
After all, “death penalty” twice is not much scarier than once. Moreover, if decoupling is what President Trump truly desires, he likely does not want China to back down either.
Conclusion
The U.S. tariffs targeting China and its ASEAN trade partners aim to address trade imbalances and decouple from China by curbing practices of disguising product origin through ASEAN. As a result, the U.S. seeks to build a fair and democratic supply chain without China. While ASEAN may be able to get out of trouble by falling in line with the U.S., China’s export-driven model faces existential challenges, and Hong Kong will inevitably be dragged into this whirlpool of economic and geopolitical turmoil.
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