When US President Donald Trump unveiled his price plan worldwide a few weeks ago, the Southeast Asian countries were particularly affected, with prices ranging from 18% to the Philippines to almost 50% on Cambodia. Malaysia, Indonesia, Thailand, Vietnam and Laos envisaged prices between 24 and 48%.
ASEAN has apparently been treated harder than other regions because many of its Member States run trade surpluses (in goods) with the United States, and Trump is obsessed with bilateral commercial imbalances. Although the United States fell back in a few days, Trump’s wild race raises an interesting question: why so many countries in Southeast Asia manage great trade surpluses, and is it actually a bad thing?
The simple response is that the Southeast Asian countries are performing major commercial surpluses because many have followed an economic development model called industrialization oriented towards exports. One of the most reliable means for a market emerge to accelerate economic growth is to make things such as textiles and electronics, then export them to foreign markets. Emerging markets can make these goods at a lower cost because production inputs, such as workforce, are generally lower than what they are in the United States or Europe.
This economic development model has been supported and benefiting in the United States for decades, and has been defended by guards of the Liberal International Order as the World Bank. This type of development was particularly effective in Asia, the World Bank overnon the miracle of East Asia in the 1990s.
In Southeast Asia, Thailand has used this model to turn into export power. Vietnam’s phenomenal growth has followed the same trajectory, with large foreign companies like LG and Nike investing billions of dollars to build production facilities in the country. The explicit goal of locating production in Vietnam and Thailand is to produce goods at a lower cost so that they can be exported to foreign markets.
If you follow the logic of this strategy, you will have noticed that the management of a large trade surplus with the rest of the world is the interest of this type of economic development. And the United States being a massive market with an appetite for affordable products, it is not surprising that such a global economic system produces net exporting countries that execute considerable commercial surpluses with it.
Trump thinks it’s unfair and as bad for the United States. Is he right to think that? The industrialization led by exports often involves state intervention on the markets to make exports more competitive. Net surplus countries frequently handle their currencies (an undervalued currency stimulates exports), removes wages and subsidizing or subtitling certain industries otherwise so that they can obtain an advantage in the global markets. You could call it unfair.
And there is true in the affirmation that global trade has become unbalanced, in particular given the geopolitical context of an increase in China stimulating growth by exporting surplus production towards the rest of the world, many of which are indeed absorbed by the United States. But what would a more lasting balance look like? Biden’s idea was to make the United States a more attractive location for high-value production and investment by pursuing an American version of industrial policy. Trump’s idea was to slap prices in all countries in the world based on a poor understanding of global trade.
The result is that for decades, the United States has built and defended a global trade system where emerging markets could industrialize by exporting the excess production to the rest of the world. They were in fact encouraged to do so, and many Southeast Asian countries have managed to follow this model. Now the United States dismantles this system spectacularly because it no longer suits them. But I wonder if the system still worked for net exporting countries anyway.
It became evident during the COVVI-19 pandemic which relying on exports as an economic growth engine was a major responsibility for emerging markets. He places them at the mercy of the external forces on which they have little control. Thailand, the most dependent nation of the export of Southeast Asia, has still not been completely presenting disturbances to world trade and the travels that started in 2020, and things are only likely to get worse in the years to come.
Even if he fell the prices, the United States shows how risky this style of economic development is and how vulnerable to external shocks. Although it undoubtedly continues in one form or another, the world economic order led by the United States which gave birth to the Miracle of East Asia undergoes a fundamental transformation. Export from excess production to foreign markets like the United States is no longer a reliable model for economic development, especially in the current geopolitical environment.
What comes next is someone’s assumption. But there are other models of economic development, those which require less dependence on the United States and do not force developing countries to execute perpetual commercial surpluses. We could see regional trade within the Anase becoming more important, or a more important role for states or internal markets to stimulate growth. Be that as it may, countries that can adapt the fastest to this new reality and develop alternative models of economic growth and development will have a significant advantage while we advance in the opaque and uncertain future.