For Asean, there’s insufficient relief from tariff reprieve

 Irrespective of the 90-day pause, potential investors are already holding back while the global economy begins to feel the pain, says expert.

Asean member countries now risk losing new investments to other emerging economies, says economist Denis Hew.

KUALA LUMPUR:

 Asean is already feeling the impact of the United States’ reciprocal tariff policy despite President Donald Trump’s recent decision to give tariffs on China a 90-day pause, according to an economist.

For instance, investors have already put their plans on hold, and the global economy is hurting, Denis Hew, senior fellow at the Lee Kuan Yew School of Public Policy, told FMT.

“Businesses are right to be concerned,” he added.

Hew, who formerly served as Asia-Pacific Economic Cooperation policy unit chief, pointed out that it is not prudent to make business plans and economic decisions on a quarterly basis when investors take the long-term view.

“If I’m going to set up a factory in Vietnam, I need to look at what will happen in the next five to 10 years. If I can’t even see what will come in the next 90 days, I’m not going to invest,” he added.

He said most multinationals will now pause their investments.

On April 9, hours after the reciprocal tariffs went into effect, Trump announced a 90-day pause for affected countries except China.

Prime Minister Anwar Ibrahim said in early April that as Asean Chair, Malaysia would coordinate a united regional response to the tariffs.

Nonetheless, Asean member states are also seeking bilateral negotiations with the White House to lessen the impact on their individual economies.

However, Trump’s announcement on May 16 that the US lacks the capacity to hold trade talks with the more than 75 countries affected and will unilaterally impose new tariffs on them in the coming weeks spells trouble for Asean.

Hew pointed out that the 90-day reprieve will do little to help given that the global economy is “already hurt”.

“There is a very close connection between trade and foreign direct investments in this region thanks to all the global supply chains that we have here,” he said.

He said one of the biggest concerns now is that Asean may become less competitive, thanks to the possibility that investors will look to other emerging markets.

Challenges at home

Beyond the external headwinds, Asean is also navigating internal hurdles that will require renewed focus.

Hew pointed out that while the region has strengthened economic cooperation through the Asean Trade In Goods Agreement and Asean Comprehensive Investment Agreement, the implementation of the terms of these agreements has been uneven.

“Since the Asean secretariat is not an enforcement institution and therefore not empowered to ensure compliance, pressure from member states is essential to move things forward,” he said.

“There has to be other ways to ensure that member countries comply with the various Asean agreements,” he added.

Hew said given emerging issues such as the US-China trade war and Trump’s tariffs, it is time for Asean member states to work together to step up economic integration.

“We have to improve productivity, invest in innovation, and reskill workers as we adopt more digital technology,” he added.

Potential complications and gains

Hew said changes in demographics across the Asean region also present opportunities and complexities.

“You have an aging population in Singapore and Thailand, but a young population in the Philippines,” he pointed out.

This, he said, is an opportunity for member countries to expand mutual recognition of professional services to boost labour mobility.

The key, he added, is to build systems that can match skills with demand across borders.

“For instance, we talk about increasing usage of AI but we have yet to discuss the issue of giving recognition to each other’s software engineers,” he said.

But for Hew, it is not all gloom.

He said the Digital Economy Framework Agreement, which is meant to be ready this year, looks good on paper.

The agreement, one of the major economic deliverables under Malaysia’s leadership, covers issues such as cross-border data flows and data localisation.

“But the proof is in the pudding. We have to wait and see. The implementation is important,” Hew said.

Other big-ticket items are the green economy and narrowing the development gap among member states, according to the “Building an Asean Economic Community Beyond 2025” report co-written by Hew.

“(Overall) it is no longer business as usual. The global economic environment has become far more hostile,” Hew added.

Kuala Lumpur will host the 46th Asean Summit on May 26 and 27. It will present member states an opportunity to chart a course for collective resilience and prosperity under this year’s theme of “Sustainability and Inclusivity” as they face complex geopolitical and economic challenges.

The bloc will also be launching the Asean Community Vision 2045, which is a sketch of the region’s economic, political-security, and sociocultural priorities and plans in the coming years. - FMT