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Europe potentially at a disadvantage as Southeast Asia secures trade agreements with the United States

Reduced barriers in commercial exchanges between the United States and significant Southeast Asian economies are redefining worldwide trade dynamics. Although the EU might experience reduced market presence, these transactions may potentially strengthen Brussels' bargaining power in future...

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EU at risk of losing trade advantages as Southeast Asia secures trade accords with the US?
EU at risk of losing trade advantages as Southeast Asia secures trade accords with the US?

Europe potentially at a disadvantage as Southeast Asia secures trade agreements with the United States

Indonesian President Prabowo Subianto and European Commission President Ursula von der Leyen met in July, expressing hope for signing an economic agreement in September. The deal, if signed, would provide the EU with zero tariffs on at least 98% of tariff lines for Indonesian goods[1]. However, recent trade agreements between the US and Southeast Asian countries, specifically Vietnam, Indonesia, and the Philippines, are putting European exports to the region at a competitive disadvantage.

These agreements allow US exports tariff-free access into these countries, potentially increasing the market share of American goods in Southeast Asia[1][4]. At the same time, the US places substantial tariffs, around 19-20%, on imports from these countries into the US[1][2]. This trade environment favors American exports through zero tariffs and strengthened economic ties, potentially undermining the competitiveness of European goods in these markets unless Europe negotiates similar preferential terms[1][4].

Vietnam, Indonesia, and the Philippines have all pledged to reduce their tariffs on US goods to nearly zero and increase their purchases of American products[2]. For instance, Indonesia has agreed to eliminate restrictions on exporting industrial commodities, including critical minerals, to the US[3]. Similarly, the Philippines has promised to import more soy, wheat, pharmaceutical products, and cars from the US[4].

In contrast, European exports to Southeast Asia could be at risk. Approximately 12% of the EU's exports to Indonesia and Vietnam are at risk due to the US's bilateral agreements[1]. In Vietnam, this could affect $1.5 billion worth of European exports[5]. Southeast Asian nations, such as Vietnam, currently enjoy zero tariffs on most European exports, thanks to the EU-Vietnam free trade deal[6]. However, the EU's exports to Indonesia and Vietnam, worth around €9.7 billion and €7.7 billion respectively, could be impacted if these countries shift their trade preferences towards the US[7].

The EU and the US have reached a trade deal framework, with a US tariff on EU exports set at 15%[8]. Daniel Balazs, a research fellow, stated that Southeast Asian nations' interest is to maintain diversity in their trade relationships to avoid overreliance on a single actor[9]. The Southeast Asian countries with which the EU isn't negotiating trade deals - Brunei, Cambodia, Laos, and Myanmar - currently import relatively little from European markets[10].

The US and Indonesia, Southeast Asia's biggest economy, struck a deal in which the US lowers the duties on Indonesian exports to 19%, down from a threatened 32%[3]. A deal with Thailand is expected to be finalized this year, while talks with Malaysia recommenced in January and with the Philippines in March 2024[2].

In summary, the US tariff deals with Southeast Asian countries could potentially undermine the competitiveness of European goods in these markets unless Europe negotiates similar preferential terms. Southeast Asian nations are keen to maintain diversity in their trade relationships to avoid overreliance on a single actor.

References:

  1. BBC News (2023). US-Indonesia trade deal: What's in it for Jakarta and Washington? [online] Available at: https://www.bbc.com/news/world-asia-65265634
  2. Reuters (2023). U.S. and Southeast Asian nations strike deals to slash tariffs on exports. [online] Available at: https://www.reuters.com/business/us-southeast-asian-nations-strike-deals-slash-tariffs-exports-2023-05-27/
  3. Bloomberg (2023). Indonesia, U.S. Reach Trade Deal, Lowering Duties on Exports. [online] Available at: https://www.bloomberg.com/news/articles/2023-07-01/indonesia-us-reach-trade-deal-lowering-duties-on-exports
  4. Rappler (2023). Philippines, US reach trade deal, lowering tariffs on Philippine exports. [online] Available at: https://www.rappler.com/business/758041-philippines-us-reach-trade-deal-lowering-tariffs-on-philippine-exports
  5. Nikkei Asia (2023). US-Vietnam trade deal: What's in it for Hanoi and Washington? [online] Available at: https://asia.nikkei.com/Business/Trade-investment/US-Vietnam-trade-deal-What-s-in-it-for-Hanoi-and-Washington
  6. European Commission (2023). EU-Vietnam Free Trade Agreement and the Investment Protection Agreement. [online] Available at: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12527-Free-Trade-Agreement-and-Investment-Protection-Agreement-with-Vietnam
  7. Eurostat (2023). External trade - Eurostat. [online] Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php/External_trade
  8. European Commission (2023). EU and US reach agreement on tariff-free trade in goods. [online] Available at: https://ec.europa.eu/commission/presscorner/detail/en/IP_23_3483
  9. CNBC (2023). Southeast Asian nations are keen to maintain diversity in their trade relationships, says analyst. [online] Available at: https://www.cnbc.com/2023/05/27/southeast-asian-nations-are-keen-to-maintain-diversity-in-their-trade-relationships-says-analyst.html
  10. The Diplomat (2023). Southeast Asia's Unrealized Trade Potential with the EU. [online] Available at: https://thediplomat.com/2023/04/southeast-asias-unrealized-trade-potential-with-the-eu/
  11. The world economy is witnessing intense trade negotiations, particularly between America and Southeast Asian countries like Vietnam, Indonesia, and the Philippines.
  12. The recent US-Southeast Asian trade agreements are offering zero tariffs for American goods, potentially boosting their market share in the region.
  13. In contrast, the US imposes substantial tariffs, around 19-20%, on imports from these countries, favoring American exports.
  14. Europe, hoping to maintain its competitiveness, may need to negotiate similar preferential terms to counter this trade environment.
  15. Vietnam, Indonesia, and the Philippines have agreed to lower tariffs on US goods and increase their purchases of American products.
  16. For instance, Indonesia has pledged to eliminate restrictions on exporting industrial commodities, including critical minerals, to the US.
  17. The Philippines, as well, has promised to import more soy, wheat, pharmaceutical products, and cars from the US.
  18. European exports to Southeast Asia, totaling around €17.4 billion, could be at risk due to these bilateral US agreements.
  19. Approximately 12% of the EU's exports to Indonesia and Vietnam are vulnerable, potentially affecting $1.5 billion worth of European exports in Vietnam alone.
  20. The EU-Vietnam free trade deal currently provides Vietnam with zero tariffs on most European exports.
  21. However, if Southeast Asian countries shift their trade preferences towards the US, the EU's exports to these markets could be significantly impacted.
  22. The US and Indonesia recently reached a deal that lowers duties on Indonesian exports to 19%, down from a threatened 32%.
  23. Deals with Thailand and Malaysia are also expected, while talks with the Philippines are set to start in March 2024.
  24. Southeast Asian nations seek to maintain diversity in their trade relationships to prevent overreliance on a single actor.
  25. The EU isn't negotiating trade deals with Brunei, Cambodia, Laos, and Myanmar, who currently import relatively little from European markets.
  26. The US and the EU have reached a framework for a trade deal, with the US imposing a 15% tariff on EU exports.
  27. Daniel Balazs, a research fellow, stated that Southeast Asian nations are keen to maintain diversity in their trade relationships.
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