The U.S. Tariff Strategy, China's Competition, and the Future of Global Trade

Bilahari Kausikan, former permanent secretary of the Singapore Ministry of Foreign Affairs, believes the United States' tariff policy is part of a long-term competitive strategy against China. He anticipates this policy will continue regardless of who occupies the presidency.

Kausikan observed that former President Trump viewed tariffs as a versatile tool, employing them for various objectives including national security, deficit reduction, and bringing manufacturing back to the U.S. He doesn't believe this approach is sustainable long-term, particularly given the impending expiration of the initial 90-day timeline. He anticipates extensions for major countries like the U.K., Japan, India, and China.

Kausikan suggests that the U.S. tariff policy will negatively impact the U.S. economy, leading to increased inflation and potentially harming the president's base. He views the tariffs as particularly dangerous for low and middle-income countries. He points out that export-driven growth, a path followed by Japan, South Korea, and Singapore, will become more challenging for countries like Vietnam, Indonesia, Thailand, and Malaysia, and even certain regions of China. This could lead to economic stagnation and geopolitical instability.

Kausikan emphasizes that trade policies should be understood within the context of broader strategic competition. He believes the U.S. aims to bring manufacturing back to the country as part of a long-term strategic competition with China, with trade being just one instrument. He sees little difference in this trade policy between different administrations, as the strategic competition with China is a long-term endeavor.

He also highlights concerns about transshipment from China through Southeast Asia to the U.S., which will pose a significant challenge for countries like Vietnam, Thailand, and Malaysia. He acknowledges that Chinese companies are moving to Southeast Asia for legitimate reasons, including rising production costs in China and concerns about their own government. He believes Southeast Asian countries will need to navigate this complex situation carefully.

Kausikan stresses the importance of the U.S. market, noting that it is irreplaceable for any country. He advises countries to carefully weigh the benefits and costs of their relationships with the U.S. and China. He believes countries should continue to attract investment but be more cautious about the nature of their collaborations with China.

He notes that economic integration is politically challenging, especially during periods of slow growth. He points out that the ten ASEAN economies are competitive with each other, making integration even more difficult. He believes that while integration is needed, achieving it is uncertain. He emphasizes the importance of countries making themselves attractive to investors. He hopes that Japan will continue to invest in ASEAN and that Southeast Asian countries will work to attract Japanese investment.