Why Asean and Malaysia must renegotiate Trump’s tariff deals

Lim Teck Ghee

As stakeholders and economic players in the economic wellbeing of the Asean region begin to assess the damage from US President Donald Trump’s recent visit – and especially the trade agreements concluded or nearing completion – one key concern is emerging.

This is whether countries of the region have been or are being rushed into premature agreements, and whether the leaders of these countries may be ‘bending their knee’ more than the situation and circumstance demands.

Those refuting this contention argue that it was necessary to secure a quick, and what some negotiators from the region regard as ‘favourable’ deal by taking advantage of Trump’s well-known susceptibility to flattery and praise.

However, no truly special deal appears to have been secured by any Asean member country from the summit meeting. This is clear from the summary of core trade-offs below.

Short-term benefits and long-term risks

Market access: Maintains access to the US market by avoiding crippling tariffs (as high as 49%). Provides at least temporary relief and predictability for key exports.

But the US can still unilaterally raise tariffs in the future for ‘national security’ or other reasons. Subsequent US deals with other countries could undermine the competitive advantage gained.

Economic concessions: Agreements include major purchase commitments (eg Boeing aircraft and liquefied natural gas) and facilitation of investments in the US. Some of these may be hard – or even impossible – to fulfil due to production and regulatory constraints.

Strategic and sovereignty costs:  Includes ‘economic security’ provisions aimed at China, such as aligning with US export controls. These risk subcontracting national security interests to the US and may provoke countermeasures from China, Asean’s largest trading partner. This concern has featured prominently on social media.

Legal and enforcement issues: The deals lack traditional dispute settlement mechanisms. The US retains significant leverage, making it risky for Asean partners to challenge US actions. New and unclear rules on transshipment to counter China create major uncertainty for regional businesses.

Key provisions and regional context

The agreements signed with Malaysia and Cambodia, along with frameworks for Vietnam and Thailand, share several key features that illustrate the above trade-offs, unprecedented in the region’s economic history:

Tariff structure: Asean countries like Malaysia and Cambodia agreed to eliminate or reduce their tariffs on a range of US goods. In return, the US agreed to cap its tariffs on their goods at no higher than 19% – a  reduction from the initially threatened rates of over 40%.

Rules of origin and trans-hipment: A notable feature is the focus on preventing third countries, particularly China, from benefiting. The US is pushing for stricter rules and enforcement against transshipment, which involves Chinese goods being slightly processed or relabelled in Asean nations before being exported to the US. However, the lack of a clear, published formula for these rules creates significant uncertainty for regional supply chains.

A ‘least-worst option’ in a prisoner’s dilemma: Supporters of the agreements – and those yet to be concluded – see the bilateral deals as the least-worst option. Fearing that their neighbours might cut a deal first and gain a competitive advantage, each country has negotiated alone, undermining the collective bargaining power of Asean, thus negating assertions by leaders of the importance of standing together. This has led to a situation where the region’s economic interests and longer-term resilience have been subordinated to individual, short-term gains.

Optimistic defenders of the trade agreements reached have touted these quick deals as a pragmatic solution, noting that they successfully avert an immediate economic crisis by preventing prohibitively high US tariffs.

However, the agreements to date have come at the price of significant economic concessions, heightened strategic risks with China, and the acceptance of terms that heavily favour US leverage and interests.

The medium and long-term consequence may be a weakening of Asean centrality as members are pulled deeper into the US–China rivalry.​

Meanwhile, an important point is missing from much of the objection to the trade agreements concluded. This is that the trade agreements are being legally contested in the US, which strengthens concerns that the responses were premature and potentially disadvantageous.  

How will US Supreme Court rule?

On 5 November, the Supreme Court will hear arguments in a pair of challenges to Trump’s power to impose sweeping tariffs on virtually all goods imported into the US. The stakes are high as the cases are not only an important test of presidential power but also carry major external implications.

​Uncertainty of tariffs’ legality

​The lawsuit: The tariffs imposed by the current administration, largely under the International Emergency Economic Powers Act (IEEPA), are being challenged in US courts, including an appeal to the Supreme Court. Lower courts – the US Court of International Trade and the Court of Appeals for the Federal Circuit – have already ruled against the broad application of these tariffs, suggesting they exceed the president’s authority under the IEEPA. The Supreme Court is expected to rule soon.

The risk: If the Supreme Court were to strike down or significantly limit the tariffs, the primary leverage the US administration used in the negotiations with Asean countries would be greatly reduced or even removed entirely.

​The argument: Critics argue that by signing agreements while the tariffs were still legally contested, Asean nations were negotiating from a position of weakness under duress. Had they waited for a favourable Supreme Court ruling, they might have secured much better terms – or even the automatic removal of the tariff – without having to make the concessions included in the current deals.

The road ahead

Market players in the US are expecting a close call on the Trump tariff case at the Supreme Court with the latest news report predicting that there is a 60% chance that the court will rule against the president.

Whatever the outcome of the Supreme Court decision, Asean member countries should consider individual and collective renegotiation of the imposed trade agreements with the US as soon as practicable. This could take place as early as next year following the court decision, or in line with the outcome of the trade renegotiation agreements that other countries, including some of the US closest allies – are currently pursuing with the Trump administration.

These renegotiations would allow Asean countries to highlight the disruption that Trump’s tariff policy has unleashed on the rules-based global trading system, and its negative economic impact on Asean, which remains a key player in global markets and supply chains.

The latest trade agreements are not only a violation of the World Trade Organization’s principles and rules but also a strategic blunder that could continue to diminish US influence and standing in the region.

Dr Lim Teck Ghee is a prominent economic historian and public intellectual. 

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