S'pore's economic resilience will face headwinds in second half of 2025 from tariffs, trade conflicts: MAS
SINGAPORE - Singapore's better-than-expected economic performance so far this year will be put to test in coming months
as higher tariff rates kick in, along with the risk of renewed trade conflicts and financial shocks, the central bank said on July 30.
The Monetary Authority of Singapore (MAS) added that both the global and local economies remain subject to significant uncertainty for the rest of this year and next.
MAS said the anticipated rise in tariff rates and persistent uncertainty of their impact are likely to weigh on final demand across many economies. As a result, growth in Singapore's major trading partners is projected to slow over the remainder of 2025 and into 2026.
''Against this backdrop, Singapore's growth is expected to moderate over the rest of the year,'' MAS said in its quarterly Macroeconomic Review report.
Still, reflecting the stronger-than-expected performance in the first half, economic growth for the whole of 2025 is expected to be firmer than previously envisaged, MAS added.
The economy
averted a possible technical recession in the second quarter of 2025, with gross domestic product (GDP) expanding by a seasonally adjusted 1.4 per cent quarter on quarter. That was a turn around from the 0.5 per cent contraction in the first quarter.
On a year on year basis, GDP grew 4.3 per cent, extending the 4.1 per cent growth in the first quarter.
However, the stronger-than-expected performance was mainly credited to a pickup in the trade-related sectors of the economy - aided by front-loading of orders by businesses ahead of potential increase in US tariffs.
MAS said the front-loading of exports from Singapore and other Asean economies was motivated by a trade truce between the United States and China, lowering the spike in tensions after
April 2 announcement of reciprocal tariffs.
Coupled with the exemptions for electronics and pharmaceutical products from the tariffs, trade-related activities increased.
However, the boost from front-loading was uneven, with re-exports outperforming domestic manufacturing.
MAS said in real terms, re-exports surged by 31 per cent year on year in the second quarter, while domestic exports and industrial production grew at a more moderate pace.
Trade flows were also lopsided.
MAS said Singapore's re-exports were underpinned by the US and Taiwan markets, reflecting the Republic's traditional role in facilitating trade in both the downstream and upstream stages of the production chain.
In the downstream segment, there was a sharp increase in Singapore's re-exports of final electronics such as personal computers and mobile phones, as well as a broad range of machinery and equipment bound for the US.
But the thrust in front-loading of export orders will likely dissipate as the time out of potential tariffs ends on Aug 1 for most economies and the trade war truce for China ends Aug 12.
''The trade-related sectors could experience some payback from the front-loading driven growth seen in the first half of the year while underlying demand could be weighed down by prevailing uncertainties,'' MAs said.
Some progress has been made in trade negotiations between the US and other
countries, with tariff rates for China, the EU, Japan and Vietnam settling below the April 2 levels following the recently concluded framework agreements.
But overall tariffs on Singapore's trading partners, particularly those in its immediate neighbourhood, would likely rise above the base 10 per cent rate Singapore is subjected to.
This would in turn affect Singapore indirectly through its intermediate goods and services exports to these countries, MAS said.
''Externally-oriented sectors are likely to see softer activity as front-loading effects fade and global demand weakens.''
While external headwinds may spill over into domestic-oriented sectors such as retail and food and beverage, healthy household balance sheets and government support measures should help cushion the impact.
''Some pockets of support also remain in the construction sector as well as the sentiment-sensitive segments within the financial sector.''
MAS said search for better returns by global and local investors could provide some upsides to growth in Singapore's financial sector.
'Notwithstanding the heightened volatility, financial markets seem rather resilient, largely recouping the sharp valuation losses of early April by end-May as trade negotiations showed signs of progress.'
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Amid these market gyrations, some retail investors had increased their allocations to oversold assets and benefited from the subsequent recovery.
Similarly, institutional investors such as fund management firms have increased their net risk exposures since April and are looking at diversifying their portfolios amid the increasingly complex global investment landscape.
'As such, market trading activity could pick up and provide some support to growth through net fees and commissions of banks, fund managers, forex, and security dealers.' MAS said.
However, the uncertainty facing the Singapore economy is likely to persist and affect companies investment decisions.
'As firms remain wary of the longer-term impact of tariff and non-tariff barriers, they could put longer-term plans on hold while making incremental adjustments to production and investment decisions.'
Consequently, business expenditure might decline gradually, extending the drag on gross fixed capital formation and hence GDP growth over a more prolonged period, MAS warned.
The central bank said labour market conditions in Singapore could also moderate further in the second half of 2025, amid uncertain economic growth prospects.
'Demand for workers could continue to soften over the second half of this year as GDP growth slows and firms hold back on their expansion plans given an uncertain economic outlook.'
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CNA
8 hours ago
- CNA
As Malaysia, Thailand and Cambodia hail US tariff discounts, what factors account for the outcome?
KUALA LUMPUR: Three Southeast Asian states involved in ending a recent armed conflict in the region - Malaysia, Thailand and Cambodia - hailed the reduction in tariff rates imposed by the United States as a victory after prolonged talks, and a reprieve for their domestic economies. Experts said the ceasefire, which allowed US President Donald Trump to burnish his peacemaker image, was among several contributing factors that led to substantial tariff discounts for these Southeast Asian countries. Joanne Lin, who is senior fellow and co-coordinator of the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute, said the timing and geopolitical backdrop were crucial in how Malaysia, Thailand and Cambodia secured the reduced tariff rate. 'Their success came just days after a US-endorsed ceasefire was brokered between Cambodia and Thailand, with Malaysia playing a key mediating role,' she told CNA. 'This allowed Trump to publicly take credit for helping end a regional conflict, bolstering his image as a global dealmaker.' Other factors cited included the willingness by Malaysia, Cambodia and Thailand to open up market access to the US, and a desire by Washington to move these three countries deemed to be China-friendly further away from Beijing's orbit of influence. REGIONAL REACTIONS Under the new executive order by Trump on Friday, Malaysia now faces a 19 per cent tariff rate on its goods exported to the US, down from 25 per cent. Fellow Association of Southeast Asian Nations (ASEAN) members Cambodia (36 per cent to 19 per cent) and Thailand (36 per cent to 19 per cent) also struck eleventh-hour trade deals with the US, achieving identical levies to Malaysia. The Philippines (20 per cent to 19 per cent), Indonesia (32 per cent to 19 per cent) and Vietnam (46 per cent to 20 per cent) had announced earlier deals with the US. The US tariff rates imposed on Singapore (10 per cent), Brunei (25 per cent), Laos (40 per cent) and Myanmar (40 per cent) remain unchanged. These levies will come into effect from Aug 7 - a one-week delay from Trump's original Aug 1 deadline. The reductions for the trio come after Thailand and Cambodia agreed to an immediate and unconditional ceasefire brokered in Malaysia, with interventions from China and the US, specifically from Trump who had threatened to not make trade deals with them if the fighting had continued. Malaysia is the only one among the three so far to overtly acknowledge that the ceasefire was a factor in the latest tariff rates meted out to the country. '(Malaysia's role in facilitating the ceasefire) did definitely help,' said Malaysia's Investment, Trade and Industry Minister Tengku Zafrul Abdul Aziz at a press conference on Friday, in response to a question by CNA. 'How much? I am not aware. But all the goodwill that was achieved during the call between PM (Anwar Ibrahim) and Donald Trump, where one of the discussions was about the ceasefire, I believe did leave a good impression on Malaysia's role as chairman of ASEAN, in the peacekeeping and ceasefire discussions.' He also stressed that the tariff negotiation with the US was a 'win-win situation' for both countries. 'It also shows the strong bilateral relationship between Malaysia and the US,' he said. His ministry had earlier depicted Malaysia's reduced 19 per cent US tariff rate as a 'significant achievement', as other Southeast Asian neighbours welcomed similarly substantial discounts in their own US levies. MITI said its latest US tariff rate was achieved after a 'thorough and methodical negotiating process' with Washington. 'Most importantly, Malaysia had stood firm on various 'red line' items, and the 19 per cent tariff rate was achieved without compromising the nation's sovereign right to implement key policies to support the nation's socioeconomic stability and growth,' MITI said in a statement. Malaysia's rate - six percentage points lower than initially threatened - comes after Anwar said on Thursday he had spoken to Trump over the phone that morning. Anwar said the pair discussed tariffs "in the spirit and principle of free trade" and that Trump had decided to review the tariff rates imposed on Malaysia. Trump had issued a letter to Malaysia on Jul 7 saying it faces a 25 per cent tariff rate pending negotiations ahead of Friday's deadline. Putrajaya responded by saying it would not budge on 'red lines' in tariff negotiations, including in areas of national interest like halal certification and digital trade. Tengku Zafrul told reporters on Friday that Malaysia rejected US requests to abolish excise duties on alcohol, tobacco and the automotive industry, noting that Malaysia has its own national car with an automotive industry that employs 700,000 people. Malaysia also turned down a US request to abolish foreign shareholder equity limits in certain strategic sectors, and held firm on its stringent digital platform laws, he said. On the other hand, the minister acknowledged that Malaysia had agreed to eliminate tariffs on a number of US agricultural products, and facilitate the importation of halal meat from the US. 'Overall, I think given the many things that we stood firm on, we are quite happy that America understands our position,' he added. 'We want the rate to be fair in the region with our ASEAN neighbours. So I think we are quite satisfied, relatively speaking, where we are versus our ASEAN partners.' The spokesman of the Thai Prime Minister's Office said the agreed tariff rate will help the country maintain its competitiveness. Jirayu Chuopsap said it was a 'win-win approach' that would ensure Thailand maintains its export base and long-term economic stability. He added that it would 'emphasise Thailand's potential in the world trade arena amidst changes in international trade policy'. Thailand had been facing a 36 per cent tariff and the prospect of missing the Aug 1 deadline to make a deal with Washington, amid the ongoing border dispute with neighbouring Cambodia. Meanwhile, Cambodian Prime Minister Hun Manet on Friday welcomed the 19 per cent deal with the US. 'This is the best news for the people and economy of Cambodia to continue to develop the country,' he wrote on social media, also thanking Trump for his 'initiative and decisive leadership' in securing the ceasefire and monitoring its implementation directly until permanent peace and normalisation of relations between Cambodia and Thailand is achieved. Separately, Cambodia's Deputy Prime Minister Sun Chanthol said that his country's vital garment and footwear industry has averted a collapse with Washington's reduction of tariff rates on the country's exports to the US. Cambodia was initially slapped with a 49 per cent tariff rate, before it was reduced to 36 per cent and later to the eventual 19 per cent. "First off the bat, I have to thank President Trump for providing a rate that's competitive vis-a-vis our neighbouring countries and express gratitude to President Trump for his noble intervention for a ceasefire and peace," he said, referring to the armed conflict along the Thai-Cambodia land border. WHAT EXPERTS ARE SAYING Some experts have noted that Trump is using tariffs beyond the realm of trade and as a foreign policy tool for countries to acquiesce to US demands. Analyst Adib Zalkapli, who is the managing director of geopolitical consultancy Viewfinder Global Affairs, told CNA that the Thailand-Cambodia ceasefire deal which Malaysia's PM Anwar brokered was 'certainly one of several contributing factors' behind the substantial tariff discounts for the three countries. 'From a political perspective, the ceasefire gave a convenient and symbolic conclusion to the tariff negotiations,' Adib said. However, he noted that the negotiation process is also complex and influenced by multiple overlapping considerations, and that 'no single issue typically makes or breaks a deal'. 'These negotiations usually involve multiple, interconnected issues - the US wanted greater market access and the removal of non-tariff barriers, while the other countries keen to secure an agreement very likely responded by offering selective concession,' he told CNA. Separately, Lin from ISEAS said that beyond the diplomatic optics of the ceasefire deal, Malaysia, Thailand and Cambodia also showed a 'willingness to engage with Trump's transactional approach to trade'. 'Drawing lessons from fellow ASEAN members like Indonesia and Vietnam (who earlier secured lower rates) they reportedly offered pledges, including greater market access for US goods and commitments to increase American imports. 'Thus, the convergence of strategic timing and economic pragmatism were probably the key factors,' said Lin. She added that the five ASEAN states that managed to get their respective tariffs reduced to 19 percentage points are seen to be open, flexible and willing to negotiate directly with the US on Washington's terms. 'Each of them offered concessions, whether by pledging to lower tariffs or non-tariff barriers, increase imports of US goods or expand market access. In short, they were responsive to US demands and willing to transact,' said Lin. She also pointed out how several Southeast Asian countries, particularly Malaysia, Cambodia and Indonesia are seen as being within China's sphere of influence, with President Xi Jinping visiting Malaysia, Cambodia and Vietnam earlier this year, underscoring their strategic relevance. 'By engaging with these governments, the US not only secured trade concessions but also reinforced its presence in key parts of the region where influence is being contested with Beijing,' she added. Anusorn Tamajai, the dean of Rangsit University International College in Thailand, said while the US' involvement in the ceasefire negotiations was an effective strategy that yielded positive benefits for both sides, and enhanced Washington's image in Southeast Asia as a peacekeeper, it was likely not the main reason tariff negotiations were successful. 'I believe it was more about trade liberalisation. That was the key - market access - which helped us successfully strike the deal on Trump-era tariffs,' he said. Despite the more favourable tariff rate, Anusorn said Thailand's exports are likely to slow down for the second half of 2025. This is primarily because for the first five months, the growth rate has 'surged significantly', he said. 'Part of this was due to the US importers accelerating their imports to avoid tariffs, as it was still unclear what the final tariff rate on Thai products would be,' he said, adding that exports growth was likely to rebound in 2026. Over in Cambodia's capital Phnom Penh, Ou Virak, the founder of Future Forum, a public policy think tank, said the situation is like returning to the status quo, given Cambodia's tariff rate is in line with the rest of the region. 'There's a joke that you don't need to outrun the bear, you just need to be faster than your friend. We expect the landscape will be similar (to previously),' he said. The impacts on the garment industry, he expected, will be minimal given the US was unlikely to start producing such goods domestically. 'What is interesting is Cambodia's concessions on US goods but we hardly buy anything from the US, so there's nothing major there,' he said, referring to how Cambodia will impose zero tariffs on all American goods. Meanwhile, former World Trade Organization chief economist Robert Koopma told CNA's Asia First that the language used around these tariff deals with the US contains 'a lot of constructive ambiguity'. He noted the difference between them and trade agreements, which are usually extremely detailed and have 'very specific language'. But the deals made so far have very few details. He said the deals 'allow the US president to declare victory', while most US trading partners have basically decided not to retaliate to get a relatively lower tariff than what was threatened. 'Both sides of the deal basically get to say, 'We got something out of this, and it's yet to be determined exactly what it is, and as time passes, we'll both interpret the language in the deal in a way that favours us'."
Business Times
8 hours ago
- Business Times
Most Asean nations get softer US tariffs, mitigating growth risks ahead of Aug 7 hikes
MOST Asean countries have secured reductions of the US reciprocal tariffs ahead of the prior Aug 1 deadline for the higher tariffs to kick in, following months of intense deal making and significant market access, trade and investment concessions. According to US President Donald Trump's executive order unveiled on Thursday (Jul 31), Singapore remains subject to a baseline rate of 10 per cent; the majority of South-east Asian economies face duties of between 19 and 20 per cent, which will now start on Aug 7. Rahul Bajoria, Asean and India economist at BofA Securities, told The Business Times: 'This is a better outcome than what was anticipated, but the rate of tariff is still much higher than what the status quo was. 'The Asean region saw a lot of front-loading of exports, so some payback is unavoidable, but with a better growth outcome, we see a respectable scope for GDP growth in the region.' Laos and Myanmar bear the heaviest burden in the region. Despite reduced tariffs of 40 per cent each, they still face one of the highest rates the US has imposed on its global trading partners. Dozens of other countries have been hit with tariffs ranging from 10 to 41 per cent, and goods from nations not specifically listed will be levied a universal US import tax of 10 per cent. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up The 40 per cent tariff on transshipped goods now applies not only to Vietnam, but also to other countries – a move analysts largely see as aimed at China. However, uncertainties remain surrounding the rules of origin used to identify targeted shipments, as well as upcoming sector-specific tariffs. Maybank senior economist Chua Hak Bin said: ''China + 1' is not dead, as all Asean countries will face lower effective tariff rates than China. China's multinational corporations (MNCs) will likely consider having an alternative base, given China's high effective tariff rates of over 35 per cent.' The Trump administration also signalled that 'meaningful' agreements with certain nations are forthcoming, potentially leading to revised duties, as the US seeks to bring more trading partners in line with its economic and national security priorities. 'Don't assume this is the end of the story. Trump regards this as an ongoing reality show,' noted Stephen Olson, former US trade negotiator and visiting senior fellow at ISEAS-Yusof Ishak Institute. 'Developing countries, especially those in South-east Asia hoping to pursue export-led development models, will be especially hard hit,' he added. Radhika Rao, senior economist at DBS, echoed this viewpoint, emphasising that despite better clarity on the country-specific tariffs, the new rates are two to six times higher than the average implied most-favoured-nation rates in 2024, suggesting significant economic impact for both the region and the US. However, China's stronger-than-expected economic performance and its potential rapprochement with the US could mitigate the risk of a negative growth shock for the Asean region, added Bajoria of BofA Securities. The Business Times has compiled key developments from the following Asean nations to examine the implications of the latest tariff landscape: Singapore: 'Sweet spot' with lowest rate Singapore will continue to be subject to a 10 per cent baseline tariff on exports to the US, the Ministry of Trade and Industry (MTI) said on Friday (Aug 1). 'MTI has confirmed this understanding with the Office of the US Trade Representative,' a ministry spokesperson said, referringn to the US' Executive Order released on Jul 31 (eastern time). 'We are closely monitoring developments and will seek clarification from our US counterparts as necessary,' the spokesperson added. The relatively low baseline tariff rate of 10 per cent should bring some relief to exporters in Singapore, economists said. 'Singapore is in a sweet spot and 'can live with it', as her reciprocal tariff is the lowest in Asia,' said Dr Chua, echoing similar remarks by the Republic's Prime Minister Lawrence Wong earlier this week. But companies looking to launch investments are likely still 'in a holding pattern' as they assess the frequent changes in tariff policies, said Denise Cheok, head of South-east Asia economics at Moody's Analytics. Trump's tariff letters state that the levies may change 'depending on our relationship with your country', noted Bernard Aw, the Asia-Pacific chief economist at credit insurer Coface. 'The certainty is that uncertainty will remain,' he said. With the fluid situation, he said companies likely have two plans ongoing – a short-term one to mitigate uncertainties, and a long-term plan to adjust to the new economic realities. The long-term one would entail reorganising logistics and shifting production, among other things. Even so, MNCs already in the city-state would likely maintain their presence, said Dr Chua. MNCs caught in a higher-tariff country may consider Singapore as a part of their supply chain. Still, Cheok estimates the baseline tariff could shave about 0.5 percentage points off Singapore's gross domestic product. 'With close trade partners attracting much higher tariffs, the hit to GDP from direct tariff-related disruptions would come in closer to about 1 percentage point,' she said. She added that beyond the headline 10 per cent, a key concern for Singapore is sectoral tariffs, especially on pharmaceuticals, which dominate Singapore's exports to the US. Since the Singapore economy is highly dependent on trade, the indirect effects of tariffs on global export demand remain a key factor to the outlook, said Cheok. Dr Chua said he expects Singapore's export and GDP growth to slow in H2, but not contract, given the reciprocal tariff deals, the low baseline tariff and a likely extension of the US-China trade truce. Reported by Sharon See from Singapore Vietnam: First, but not best While Vietnam was the first Asean country to strike a trade deal with the US by granting 'total access' to its market, its tariff outcome is no more favourable than that of most regional peers. Washington set a 20 per cent levy on goods imported from the South-east Asian country, with which the US ran a trade deficit of US$123.5 billion last year – the highest in Asean and third-highest globally. While this was a significant reduction from the previously announced 46 per cent, it remains slightly higher than the 19 per cent imposed on Malaysia, Indonesia, Thailand, Cambodia and the Philippines. According to S&P Global's latest purchasing managers' survey released on Aug 1, new export orders for Vietnam's manufactured goods contracted for the ninth consecutive month in July. While manufacturers remained optimistic about output growth over the coming year, sentiment fell to a three-month low – well below the series average – because of concerns over how the US tariffs weighed on the outlook. Still, the manufacturing sector returned to expansion in July after three months of decline, with firms securing enough domestic business to lift total new orders back into growth. Maybank analysts wrote in a recent note that Vietnam's steady rollout of private-sector reforms would cushion the impact of of the tariffs on external trade by promoting domestic investment and boosting the country's competitiveness as a destination for foreign direct investment. An improved business environment – characterised by reduced red tape, a more predictable legal framework, better education system and stronger local firms – is expected to broaden Vietnam's value proposition beyond being merely a low-cost destination, they added. Reported by Jamille Tran from Ho Chi Minh City Malaysia: Levelled playing field Just before the Aug 1 deadline kicked in, the US reduced the reciprocal tariff imposed on Malaysian imports to 19 per cent, down from the earlier 25 per cent rate, bringing the South-east Asian country in line with its regional peers. It also removes a key overhang for exporters, particularly in the electrical and electronics, as well as glove sectors. Hong Leong Investment Bank wrote in a note that from a trade standpoint, the harmonised US tariff rates across Asean ensure that Malaysia is not at a relative disadvantage. Ken Low, head of dealing at Moomoo Malaysia, noted that the tariff reduction offers short-term optimism. While the new rate is less damaging than the previous one, it remains on par with that of its regional peers, and continues to pose a hurdle to the competitiveness of Malaysian exports. In a statement on Friday, Malaysia's Ministry of Investment, Trade and Industry (Miti) stressed that the US-Malaysia tariff agreement was reached without compromising on key 'red-line' issues such as excise duty and Bumiputera equity quotas, thus protecting the country's sovereign economic policies. At a media briefing on Friday evening, Miti Minister Tengku Aziz said Malaysian semiconductor and pharmaceutical exports would remain exempt from US tariffs. Under the deal, the Malaysian government confirmed that 61 per cent or 6,911 items of its new trade arrangement's tariff lines with the United States would have zero tariffs. Malaysia and the US are expected to issue a joint statement on the tariff agreement over the weekend. Tengku Zafrul clarified there is no agreement or request from the US for exclusive access to Malaysia's rare earths, despite such minerals being central to US trade talks globally. To address the trade deficit with the US, Malaysia will make major procurements, including the purchase of another 30 Boeing aircraft valued at US$9.5 billion, he said. Miti said the government worked with Bank Negara Malaysia to model tariff scenarios and would implement targeted measures to support affected exporters and small and medium-sized enterprises. Reported by Tan Ai Leng from Kuala Lumpur Indonesia: Room to breathe Indonesia, which is grappling with domestic economic pressures , has secured a final US tariff rate of 19 per cent on its exports, easing fears of the fallout from President Trump's Apr 2 rate of 32 per cent. While still nearly double the 10 per cent baseline applied during the reprieve, the revised rate offers some relief as the country grapples with domestic economic pressures. Indonesia's tariff rate remains lower than Vietnam's, a key regional rival in labour-intensive sectors like textiles and footwear. As the US ranks as Indonesia's second-largest export market, analysts believe the reduced tariffs could boost trade and protect labour-intensive industries from economic challenges. The deal was reached following an agreement between President Prabowo Subianto and Trump to open Indonesia's vast market of 280 million consumers to US goods. Indonesia, which runs a US$17 billion trade surplus with the US, will eliminate tariff barriers on more than 99 per cent of goods coming in from the US, and commit to purchasing US$2.5 billion in agricultural products and US$15 billion in energy supplies. Citi's research team sees the agreement as having a net dovish impact on the Indonesian economy. While the shift in import sources may slightly weigh on the trade balance, the broader macroeconomic effects are expected to be manageable. Risks to the rupiah remain, but are likely to stay contained as long as Indonesia's commodity export prices remain stable. Reported by Elisa Valenta from Jakarta Cambodia: Double cuts to match peers Cambodia cheered the 'great news' of a 19-per-cent tariff on its US exports – a cut from the earlier 36 per cent and a significant drop from the original 49 per cent, which would have devastated its manufacturing sector and jarred its economy. The kingdom's Prime Minister Hun Manet took to Facebook on Friday morning to praise the 'excellent outcome', but analysts BT spoke with cautioned that Cambodia is not yet out of the woods. Adam Ahmad Samdin, an economist at research firm Oxford Economics, said that transshipments, the definition of which is left to the discretion of the US authorities, remain a bugbear for Cambodia, because its production is heavily reliant on Chinese inputs. The nation's post-pandemic economic expansion has been picking up speed, and annual growth has surpassed 5 per cent, but the double whammy of US tariffs and recent border disputes with neighbouring Thailand has clouded its outlook. Adam acknowledged that the reduced levy mitigates a substantial amount of downside risk to Cambodia's growth, noting that there remains scope for more immediate near-term support, as the kingdom improves its public debt ratio and rebuilds its fiscal space. Maybank economist Brian Lee added that border tensions will weigh on tourism, particularly in border areas, such as Poipet. Thailand is Cambodia's top source of international tourists. Nevertheless, the revised tariff brings Cambodia in line with its Asean neighbours and is lower than the rate imposed on its regional competitors (such as India) in the garment space, said Lee. He added that the risk of a sharp pullback in foreign direct investment is now reduced. The house expects Cambodia's growth to slow from 6 per cent in 2024 to 5 per cent this year and 4.6 per cent next year. Reported by Goh Ruoxue from Singapore
Business Times
9 hours ago
- Business Times
Most Asean nations get softer US tariffs to cushion growth risks ahead of Aug 7 hikes
MOST Asean countries have secured reductions of the US reciprocal tariffs ahead of the Aug 1 deadline for negotiations, following months of intense negotiations and significant market access, trade and investment concessions. According to US President Donald Trump's executive order unveiled on Thursday (Jul 31), Singapore remains subject to a baseline rate of 10 per cent; the majority of South-east Asian economies face duties of between 19 and 20 per cent, starting on Aug 7. Rahul Bajoria, Asean and India economist at BofA Securities, told The Business Times: 'This is a better outcome than what was anticipated, but the rate of tariff is still much higher than what the status quo was. 'The Asean region saw a lot of front-loading of exports, so some payback is unavoidable, but with a better growth outcome, we see a respectable scope for GDP growth in the region.' Laos and Myanmar bear the heaviest burden in the region. Despite reduced tariffs of 40 per cent each, they still face one of the highest rates the US has imposed on its global trading partners. Dozens of other countries have been hit with tariffs ranging from 10 to 41 per cent, and goods from nations not specifically listed will be levied a universal US import tax of 10 per cent. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up The 40 per cent tariff on transshipped goods now applies not only to Vietnam, but also to other countries – a move analysts largely see as aimed at China. However, uncertainties remain surrounding the rules of origin used to identify targeted shipments, as well as upcoming sector-specific tariffs. Maybank senior economist Chua Hak Bin said: ''China + 1' is not dead, as all Asean countries will face lower effective tariff rates than China. China's multinational corporations (MNCs) will likely consider having an alternative base, given China's high effective tariff rates of over 35 per cent.' The Trump administration also signalled that 'meaningful' agreements with certain nations are forthcoming, potentially leading to revised duties, as the US seeks to bring more trading partners in line with its economic and national security priorities. 'Don't assume this is the end of the story. Trump regards this as an ongoing reality show,' noted Stephen Olson, former US trade negotiator and visiting senior fellow at ISEAS-Yusof Ishak Institute. 'Developing countries, especially those in South-east Asia hoping to pursue export-led development models, will be especially hard hit,' he added. Radhika Rao, senior economist at DBS, echoed this viewpoint, emphasising that despite better clarity on the country-specific tariffs, the new rates are two to six times higher than the average implied most-favoured-nation rates in 2024, suggesting significant economic impact for both the region and the US. However, China's stronger-than-expected economic performance and its potential rapprochement with the US could mitigate the risk of a negative growth shock for the Asean region, added Bajoria of BofA Securities. The Business Times has compiled key developments from the following Asean nations to examine the implications of the latest tariff landscape: Singapore: 'Sweet spot' with lowest rate Singapore will continue to be subject to a 10 per cent baseline tariff on exports to the US, the Ministry of Trade and Industry (MTI) said on Friday (Aug 1). 'MTI has confirmed this understanding with the Office of the US Trade Representative,' a ministry spokesperson said, referringn to the US' Executive Order released on Jul 31 (eastern time). 'We are closely monitoring developments and will seek clarification from our US counterparts as necessary,' the spokesperson added. The relatively low baseline tariff rate of 10 per cent should bring some relief to exporters in Singapore, economists said. 'Singapore is in a sweet spot and 'can live with it', as her reciprocal tariff is the lowest in Asia,' said Dr Chua, echoing similar remarks by the Republic's Prime Minister Lawrence Wong earlier this week. But companies looking to launch investments are likely still 'in a holding pattern' as they assess the frequent changes in tariff policies, said Denise Cheok, head of South-east Asia economics at Moody's Analytics. Trump's tariff letters state that the levies may change 'depending on our relationship with your country', noted Bernard Aw, the Asia-Pacific chief economist at credit insurer Coface. 'The certainty is that uncertainty will remain,' he said. With the fluid situation, he said companies likely have two plans ongoing – a short-term one to mitigate uncertainties, and a long-term plan to adjust to the new economic realities. The long-term one would entail reorganising logistics and shifting production, among other things. Even so, MNCs already in the city-state would likely maintain their presence, said Dr Chua. MNCs caught in a higher-tariff country may consider Singapore as a part of their supply chain. Still, Cheok estimates the baseline tariff could shave about 0.5 percentage points off Singapore's gross domestic product. 'With close trade partners attracting much higher tariffs, the hit to GDP from direct tariff-related disruptions would come in closer to about 1 percentage point,' she said. She added that beyond the headline 10 per cent, a key concern for Singapore is sectoral tariffs, especially on pharmaceuticals, which dominate Singapore's exports to the US. Since the Singapore economy is highly dependent on trade, the indirect effects of tariffs on global export demand remain a key factor to the outlook, said Cheok. Dr Chua said he expects Singapore's export and GDP growth to slow in H2, but not contract, given the reciprocal tariff deals, the low baseline tariff and a likely extension of the US-China trade truce. Reported by Sharon See from Singapore Vietnam: First, but not best While Vietnam was the first Asean country to strike a trade deal with the US by granting 'total access' to its market, its tariff outcome is no more favourable than that of most regional peers. Washington set a 20 per cent levy on goods imported from the South-east Asian country, with which the US ran a trade deficit of US$123.5 billion last year – the highest in Asean and third-highest globally. While this was a significant reduction from the previously announced 46 per cent, it remains slightly higher than the 19 per cent imposed on Malaysia, Indonesia, Thailand, Cambodia and the Philippines. According to S&P Global's latest purchasing managers' survey released on Aug 1, new export orders for Vietnam's manufactured goods contracted for the ninth consecutive month in July. While manufacturers remained optimistic about output growth over the coming year, sentiment fell to a three-month low – well below the series average – because of concerns over how the US tariffs weighed on the outlook. Still, the manufacturing sector returned to expansion in July after three months of decline, with firms securing enough domestic business to lift total new orders back into growth. Maybank analysts wrote in a recent note that Vietnam's steady rollout of private-sector reforms would cushion the impact of of the tariffs on external trade by promoting domestic investment and boosting the country's competitiveness as a destination for foreign direct investment. An improved business environment – characterised by reduced red tape, a more predictable legal framework, better education system and stronger local firms – is expected to broaden Vietnam's value proposition beyond being merely a low-cost destination, they added. Reported by Jamille Tran from Ho Chi Minh City Malaysia: Levelled playing field Just before the Aug 1 deadline kicked in, the US reduced the reciprocal tariff imposed on Malaysian imports to 19 per cent, down from the earlier 25 per cent rate, bringing the South-east Asian country in line with its regional peers. It also removes a key overhang for exporters, particularly in the electrical and electronics, as well as glove sectors. Hong Leong Investment Bank wrote in a note that from a trade standpoint, the harmonised US tariff rates across Asean ensure that Malaysia is not at a relative disadvantage. Ken Low, head of dealing at Moomoo Malaysia, noted that the tariff reduction offers short-term optimism. While the new rate is less damaging than the previous one, it remains on par with that of its regional peers, and continues to pose a hurdle to the competitiveness of Malaysian exports. In a statement on Friday, Malaysia's Ministry of Investment, Trade and Industry (Miti) stressed that the US-Malaysia tariff agreement was reached without compromising on the key 'red-line' issues protecting the country's sovereign economic policies. While negotiation details remain undisclosed – rare earths and halal standards were reportedly discussed – no specific concessions have been confirmed by the government. Miti said the government worked with Bank Negara Malaysia to model tariff scenarios and would implement targeted measures to support affected exporters and small and medium-sized enterprises. The tariff breakthrough coincides with the launch of a RM611 billion five-year development plan, which targets economic growth of 4.5 to 5.5 per cent, RM1.82 trillion in national revenue, and a fiscal deficit below 3 per cent by 2030. CIMB Treasury and Market Research said the combination of the lower tariff and strong fiscal planning should support investor sentiment and export resilience amid global trade uncertainties. Reported by Tan Ai Leng from Kuala Lumpur Indonesia: Room to breathe Indonesia, which is grappling with domestic economic pressures , has secured a final US tariff rate of 19 per cent on its exports, easing fears of the fallout from President Trump's Apr 2 rate of 32 per cent. While still nearly double the 10 per cent baseline applied during the reprieve, the revised rate offers some relief as the country grapples with domestic economic pressures. Indonesia's tariff rate remains lower than Vietnam's, a key regional rival in labour-intensive sectors like textiles and footwear. As the US ranks as Indonesia's second-largest export market, analysts believe the reduced tariffs could boost trade and protect labour-intensive industries from economic challenges. The deal was reached following an agreement between President Prabowo Subianto and Trump to open Indonesia's vast market of 280 million consumers to US goods. Indonesia, which runs a US$17 billion trade surplus with the US, will eliminate tariff barriers on more than 99 per cent of goods coming in from the US, and commit to purchasing US$2.5 billion in agricultural products and US$15 billion in energy supplies. Citi's research team sees the agreement as having a net dovish impact on the Indonesian economy. While the shift in import sources may slightly weigh on the trade balance, the broader macroeconomic effects are expected to be manageable. Risks to the rupiah remain, but are likely to stay contained as long as Indonesia's commodity export prices remain stable. Reported by Elisa Valenta from Jakarta Cambodia: Double cuts to match peers Cambodia cheered the 'great news' of a 19-per-cent tariff on its US exports – a cut from the earlier 36 per cent and a significant drop from the original 49 per cent, which would have devastated its manufacturing sector and jarred its economy. The kingdom's Prime Minister Hun Manet took to Facebook on Friday morning to praise the 'excellent outcome', but analysts BT spoke with cautioned that Cambodia is not yet out of the woods. Adam Ahmad Samdin, an economist at research firm Oxford Economics, said that transshipments, the definition of which is left to the discretion of the US authorities, remain a bugbear for Cambodia, because its production is heavily reliant on Chinese inputs. The nation's post-pandemic economic expansion has been picking up speed, and annual growth has surpassed 5 per cent, but the double whammy of US tariffs and recent border disputes with neighbouring Thailand has clouded its outlook. Adam acknowledged that the reduced levy mitigates a substantial amount of downside risk to Cambodia's growth, noting that there remains scope for more immediate near-term support, as the kingdom improves its public debt ratio and rebuilds its fiscal space. Maybank economist Brian Lee added that border tensions will weigh on tourism, particularly in border areas, such as Poipet. Thailand is Cambodia's top source of international tourists. Nevertheless, the revised tariff brings Cambodia in line with its Asean neighbours and is lower than the rate imposed on its regional competitors (such as India) in the garment space, said Lee. He added that the risk of a sharp pullback in foreign direct investment is now reduced. The house expects Cambodia's growth to slow from 6 per cent in 2024 to 5 per cent this year and 4.6 per cent next year. Reported by Goh Ruoxue from Singapore
