US’ tough stance against Chinese products to stay regardless of who wins presidential race, hitting firms in Southeast Asia

JOHOR BAHRU: Malaysia has welcomed major investments by semiconductor firms, data centre operators and other tech players in recent years.
But its companies are now jittery over the possibility of more tariffs by the United States in its trade war and artificial intelligence (AI) race with China.
Like its Southeast Asian neighbours Vietnam, Thailand and Cambodia, Malaysia may need to brace itself for harsher tariffs should former US president Donald Trump win the Nov 5 presidential election, experts say, even as greater US protectionism is here to stay no matter who becomes its next leader.
The four Southeast Asian states are among those that have gained from the China Plus One strategy by companies to diversify their supply chains to avoid US tariffs on goods from China. The US-China trade war began in 2018 over what the US dubbed unfair trade practices by China.
The phenomenon has also been termed “Southeast Asia-washing”, which refers to Chinese companies trying to disguise the origin of their products by relocating operations to countries in the region.
This month, the US began imposing duties on solar imports from the four countries, which host factories set up by Chinese companies such as Jinko Solar and Trina Solar.
Under the new tariff regime, Malaysian solar equipment exported to the US will incur a 9.13 per cent duty. Those from Thailand will incur a 23.06 per cent duty, while the rate is 2.85 per cent for Vietnam and 8.25 per cent for Cambodia.
The rates, which are preliminary and lower than what some experts had expected, are what the US Commerce Department has calculated to be subsidies for their production.
The US tariffs have cast a pall over the sector in Malaysia, according to industry insiders, while Bloomberg reported in late-August that at least three Chinese solar companies have scaled back operations in Thailand, Vietnam and Malaysia.
Mr Ken Ong, managing director of Malaysian solar firm Helios Photovoltaic, told CNA he understands that some Chinese firms in Malaysia are stalling expansion plans following the new tariffs. 
A local official at Kulim Hi-Tech Park – an industrial facility in the northern state of Kedah – said Chinese solar firm Risen Technology has “taken precautions to reduce production output by temporarily ceasing one line of production”. 
The official, who declined to be named, added that the firm was also “looking for a new market” to ship its products. CNA has contacted Risen for confirmation. 
Jinko Solar has reportedly shut its Penang facility and retrenched workers, while the founder of Longi Green Energy Technology Co was quoted in June voicing concerns over the industry’s future in Southeast Asia. 
There are concerns that US tariffs could be extended to Malaysia’s semiconductor industry and could also put a dent on its burgeoning data centre industry.
Washington announced on Tuesday (Oct 29) that it has finalised restrictions on investments by US individuals and companies in advanced technology from China, including semiconductors, quantum computing and AI.
The restrictions ban some investments into those industries and require the US government to be notified about others. The US seeks to curb China’s access to high-end chips and other advanced technologies that could help it develop critical technologies for a military edge.
Malaysia’s semiconductor industry has gained from companies’ China Plus One strategy and it has attracted multi-billion dollar investments from leading firms such as Intel and Infineon in recent years. 
Chinese firms have also set up there and in April, three firms – China Wafer Level CSP, Ningbo SJ Electronics and Wuxi AMTE Inc – announced plans to invest a combined US$100 million in the northern state of Penang, which has been dubbed the Silicon Valley of the East.
Malaysia now accounts for 13 per cent of global chip testing and packaging. 
Mr Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, is concerned the sector could “soon” be stalled by US restrictions.
In May, the US said it would increase tariffs on Chinese semiconductors from 25 per cent to 50 per cent by 2025 as part of measures to boost the US’ capacity to manufacture semiconductors domestically.
“These Chinese companies have aspirations to make sure that their products can be sold and they want to sell it to the rest of the world … But there is this ‘China-phobia’ now (in the US), and this has nothing to do with national security anymore,” said Mr Wong.
“We have to start getting used to this – restrictions and tariffs from the US. It has (started) and it’s not going to stop.” 
But he does not expect Chinese semiconductor companies in Malaysia such as TF AMD Microelectronics, which has built a RM2 billion facility in Penang, to stall operations because of potential sanctions.
“I doubt they will hold back and (move operations) because this ‘China phobia’ will persist (anywhere they shift to),” he said.
Other experts, however, say there could be an impact on Malaysia’s data centres.
Owing to abundant land and cheaper power, including in the southern state of Johor, major data centre players like Nvidia, AirTrunk, GDS International, YTL Power as well as Princeton Digital Group have set up operations recently, and tech giant Microsoft has reportedly purchased land to open a data centre. 
Data centre expert Gary Goh told CNA that potential investors, be they Chinese or from the West, would be watching the US election closely and monitoring any subsequent sanctions related to computing and AI.
“If there are signs that exports of advanced chips to third countries like Malaysia are also limited, data centre firms will be more cautious in expansion … a cautious wait-and-see approach is the natural step to take,” said Mr Goh. 
Amid industry disquiet, the Malaysian government is engaging the US Commerce Department to delay any implementation of tariffs and lend support to impacted companies.  
Speaking to CNA on the sidelines of a media briefing on Tuesday, Malaysia’s Minister of Investment, Trade and Industry Tengku Zafrul Abdul Aziz said: “We are now helping the affected companies by getting more information and asking more time to do so, as well as engaging with the US Commerce Department to see how we can support these companies.”
Experts believe the US will continue to act against China’s trade practices, no matter who becomes its next president. Under a Trump administration, however, measures are likely to be more aggressive and abrupt, they say.
The US will increase scrutiny over trade with Southeast Asian countries regardless of the election outcome, said Mr Chim Lee, senior analyst with the Economist Intelligence Unit. 
“In other words, as supply chains become ‘China+one’, tariffs are also becoming ‘China+one’,” he said.
“Under Trump, the US may escalate tariffs on imports from Southeast Asia in a harsher and more abrupt manner. It is likely to adopt a more transactional approach with regional governments, potentially demanding that Southeast Asian governments align more closely with the US on key security and geopolitical issues in exchange for tariff exemptions,” added Mr Lee. 
In a report released on Wednesday, Singapore-headquartered bank OCBC said that under a second Trump presidency, six Southeast Asian countries – Malaysia, Singapore, Indonesia, Thailand, Vietnam and the Philippines – could be impacted if he follows through on his election promises of higher tariffs. 
Mr Steven Okun, who is senior advisor to the Singapore-headquartered consultancy APAC Advisors, told CNA the US will work to ensure that China will not have US technology, goods or investment that would harm its national interest. 
“As such, under either a (Kamala) Harris or Trump administration, the US will continue expanding its efforts to protect national security when it comes to China, either directly or through third countries,” added Mr Okun, who served as deputy general counsel at the US Department of Transportation under the Clinton administration. 
However, Ms Harris and Trump are likely to have different approaches to the issue, he said.
Ms Harris is likely to continue current president Joe Biden’s approach of working with partners and allies in advancing the US national interest through engagement in the Asia-Pacific.
In contrast, a Trump administration’s “America First” approach would likely take a bilateral perspective and be driven by whether a country has a trade surplus or deficit with the US.
“For a country such as Malaysia or Vietnam which has a large trade surplus with the US, that will drive the US approach to much more so under a Trump administration than a Harris one,” he added. 
US government data shows it notched a US$14 billion trade deficit with Malaysia across the first eight months of this year, and a US$77 billion trade deficit with Vietnam in the same period. Its trade deficit with Thailand was around US$28 billion. 
Vietnam has been “very successful” in getting firms to look at locating some or all of their production processes in the country, explained trade expert Deborah Elms.
“As Vietnam is well connected to key markets via free trade agreements, it has been an important spur to new inbound investment,” said Ms Elms. 
Some of this investment is currently coming from Chinese firms looking to diversify their risks, lower production costs or avoid high tariffs that apply to goods directly shipping from China. 
“In general, this should not pose a problem. Of course, Vietnam has to educate firms on the rules of these agreements so that firms are following the right steps to legally claim origin,” said Ms Elms of the Asian Trade Centre, a trade-related consultancy in Singapore.
“However, if Trump gets re-elected, Vietnam (especially) may face a problem as Trump is obsessed with the bilateral trade deficit numbers for goods. Vietnam sends way more products to the US than the reverse and he is likely to want to stop this,” she added.  
But American firms with sizeable business interests in, and with, China could wield some influence, believes Dr Oh Ei Sun, senior fellow at Singapore Institute of International Affairs think tank. 
Tariffs and sanctions could be “routinely waived” under heavy lobbying by such firms in the scenario of a second Trump presidency, he said.
“It remains to be seen if a second Trump administration will robustly enforce these hostile measures against China and, by extension, these US tariffs and sanctions-evading destinations in Southeast Asia,” he said.
Additional reporting by Melissa Goh