BANGKOK/KUALA LUMPUR

A wave of 'great uncertainty' is currently sweeping through Southeast Asia's automotive industry as automakers brace for the fallout from President Donald Trump's recent announcement of a 25% tariff on all vehicle imports. Experts warn that in the wake of these tariffs, companies may prioritize consolidating current operations and strengthening established relationships over pursuing risky new ventures.

"The anticipated economic headwinds and stagnant domestic demand in this region indicate that the current landscape for the auto industry is anything but favorable," cautioned Stephen Olson, a senior fellow at the ISEAS – Yusof Ishak Institute in Singapore. "We need to be patient and let this situation evolve further before we can make any solid predictions."

As U.S. trade policy continues to fluctuate, analysts suggest automakers with significant operations in the United States may pivot to reinforce existing partnerships within ASEAN and enhance regional supply chains to mitigate the impending impact of the tariffs.

While some nations, such as Vietnam and Thailand, depend heavily on exports of auto parts to the U.S., others like Malaysia and Indonesia have less direct connections. However, all Southeast Asian countries are poised to experience shifts in their automotive markets due to these new tariffs.

'Painful Adjustments' Ahead?

On April 3, Trump unleashed the tariffs, which could affect over $460 billion in annual automotive trade. An across-the-board 25% tariff on nearly 150 categories of auto parts will commence on May 3, impacting complex supply chains as components cross borders multiple times before assembly. This sweeping measure aims to bolster U.S. manufacturing by incentivizing firms to relocate production domestically.

"It's clear that adjusting to these tariffs will not be easy," noted Patarapong Intarakumnerd, deputy program director at the National Graduate Institute for Policy Studies in Tokyo. "The importance of the U.S. market may diminish over time as automakers shift focus towards regional markets."

Vietnam, for instance, recognizes the U.S. as its leading destination for auto parts and passenger vehicles, but research suggests that auto dependency may lessen as the tariffs reshape the global automotive landscape.

While Thailand, a premier automotive hub, faces greater vulnerability due to its reliance on exports and deep history with manufacturers like Toyota and Honda, there are indications that domestic car sales may further decrease. With production already in decline—reported to have dropped 24.6% year-on-year in January 2023—Thailand's automotive industry is seeking to navigate these challenging waters.

Price Cuts and Market Shifts

As automakers brace for reduced sales in the U.S., analysts predict more aggressive pricing strategies aimed at capturing market share in Southeast Asia, even in the context of a slowing economy. With heightened competition among automakers grappling for consumer attention, one can expect prices on new vehicles to undergo significant reductions.

Korean car manufacturers, including Hyundai and Kia, have already resorted to a price war, slashing prices by as much as 25% on popular models. Although Hyundai recently pledged a $21 billion investment in the U.S. through a new steel plant, the outcome of this monumental commitment concerning tariff negotiations remains uncertain.

On the contrary, some automotive players are contemplating potential shifts in production strategies that favor intra-ASEAN trade, exploring the potential for new investment opportunities and cooperation within the region.

What Lies Ahead for Thailand and Malaysia

China’s automotive interests in the ASEAN region, particularly in Vietnam and Indonesia, are expected to grow as factories align to their new supply chain strategies. Meanwhile, Malaysia, with its minimal exposure to the U.S. market, is anticipated to weather Trump's tariffs relatively unscathed. Local manufacturers are encouraged to focus on strengthening ASEAN trade ties rather than risking the uncertainties of the U.S. market.

With a bright projection for its automotive market, Malaysia aims to up its production to 790,347 vehicles in 2024, driven by increased demand for both domestic and regional markets.

In Conclusion

The implications of Trump's tariffs stretch beyond just the immediate effects on pricing and exports; they signal a pivotal moment for Southeast Asia's automotive sector. While challenges loom ahead, the dynamic response from manufacturers will shape the future of the industry, transitioning focus toward more integrated regional operations and consumer-driven innovation. Buckle up—it's going to be a bumpy ride!