【By Observer News Net, Yuan Jiaqi】

Until recently, Malaysian men's fashion designer Bon Zainal Harun was exporting custom suits and formal wear to the United States. But this summer, President Trump's excessive tariffs have basically blocked him out of this market.

In an interview with This Week in Asia, a subsidiary of Hong Kong's South China Morning Post, Zainal said, "Price increases may disrupt business. We can only actively adapt and maintain competitiveness."

According to reports by Hong Kong media on the 25th, the Trump administration imposed a 19% tariff on imported goods from Malaysia, which has hit the country's small but profitable textile industry particularly hard.

Data from the Malaysian Textile Manufacturers' Association shows that Malaysia's clothing exports to the US amounted to about 1.39 billion ringgits (approximately 2.344 billion yuan) in 2023, rising to 1.6 billion ringgits (about 2.698 billion yuan) in 2024. However, in the first eight months of this year, the figure was approximately 998 million ringgits (about 1.683 billion yuan).

Compared to the clothing industry, the US tariffs will have a greater impact on Malaysia's electronics and semiconductor industries. Last year, these two product categories accounted for about 40% of the country's total exports. The Malaysian government estimates that the tariffs will reduce the country's economic growth rate by about one percentage point, with growth expectations for 2026 dropping to 4% to 4.5%.

Malaysia's tariff rates are still relatively low among Southeast Asian countries, with Thailand, Indonesia, and Cambodia also applying this rate; while the poorest countries in the region, such as Laos and Myanmar, face tariffs as high as 40%.

However, as the initial shock subsides, the South China Morning Post notes that small and medium-sized enterprises (SMEs) in Southeast Asia are undergoing a "prolonged farewell": although unwilling, they are largely giving up on their illusions and adjusting their strategies, gradually moving away from reliance on the US market, preparing for a longer-term future.

For many businesses, this means turning to the domestic market: exploring new markets closer to home, compressing profit margins, and simultaneously reducing exposure to tariffs.

"No matter if there are tariffs or not, clothes will always sell," said Zainal, who remains optimistic. "My advice is to focus on the domestic and regional markets. In the fashion world, even higher prices have consumers, we just need to invest more creativity in design and marketing."

A worker is ironing clothes in a Vietnamese factory.

The report points out that SMEs across the ASEAN region are learning to adapt to what is being called the "post-US trade era". Although some believe "US buyers will not completely disappear", almost no one is expecting the previous trade order to return.

Taking Vietnam as an example, exporters are adopting a "de-risking" strategy, reducing dependence on volatile markets like the US.

In these markets, tariff changes and exchange rate fluctuations could erase profits overnight; and Trump's unpredictable tariff policies have made the US market completely unpredictable and unstable, forcing companies to shift their focus.

"For small businesses like us, maintaining stable cash flow is crucial," said Hoang Tung, chairman of F&B Investment & FoodEdu Academy. "Vietnam has over 100 million people, which is a huge market, and it's our company's direction of development."

Currently, demand for manufacturing in Vietnam is surging. Despite numerous uncertainties, the country expects its economic growth rate to reach 10% next year, thanks to new partners and diversified exports, ensuring continuous production lines.

American tariffs are also impacting American companies that outsource production in Southeast Asia.

VF Corporation, the parent company of brands such as Vans, The North Face, and Timberland, has 30 factories in Vietnam, Indonesia, Cambodia, Thailand, Malaysia, Laos, and the Philippines. Southeast Asia has become one of its most critical production bases, supplying nearly 40% of its products.

But now, VF Corporation must bear the increased costs and logistics challenges that were previously transferred through outsourcing. It is expected that the cost of importing clothing and footwear from Southeast Asia will increase by an additional $250 million to $260 million next year.

"This is a very unusual situation, and the entire industry is affected in the same way," said CEO Bracken Darrell during a July earnings call. "We will remain flexible, and make more agile adjustments from pricing, cost control, and factory relocation perspectives."

Jaideep Singh, an analyst at the Institute of Strategic and International Studies in Malaysia, bluntly stated that almost no one believes the direction of American trade policy will reverse in the short term, and these tariff measures are "unlikely to be immediately removed after the Trump administration ends."

He told Hong Kong media, "Analysts and policymakers around the world are viewing Trump's trade policy as part of a broader shift in American trade behavior, and are treating it as a normalized approach."

Perhaps because of this, the outside world has not held high expectations for Trump's attendance at the ASEAN leaders' summit this Sunday. According to reports by Hong Kong media, small and medium-sized enterprises in Southeast Asia only hope that his visit will not add new restrictions or force local markets to open up to American goods, thus causing further damage to the local economy.

The report also mentioned that ASEAN leaders have prepared for potential turbulence caused by Trump's visit. Prime Minister Anwar of Malaysia is expected to act cautiously, aiming to avoid public conflicts over trade or relations with China.

Trump attended only one ASEAN Summit during his first presidential term, which was the 2017 summit in the Philippines. However, his performance then deepened the perception that "the US lacks interest in ASEAN," and to some extent pushed ASEAN closer to its largest trading partner, China.

Photo: November 13, 2017, Manila, Philippines, the opening of the 31st ASEAN Summit, U.S. President Trump and other participating leaders took a group photo. Visual China

"The best scenario is for Malaysia to successfully host a smooth and balanced summit that showcases ASEAN unity and achieves practical progress in trade and regional cooperation," said Shawn Balakrishnan, a partner at Penta Group's Asia-Pacific division. "But the worst outcome could be public conflicts or impromptu remarks that overshadow the summit agenda, causing market panic or diplomatic friction with China."

John Low, managing partner of Roland Berger's Southeast Asia division, also expressed concerns. "The worst case is that sharp remarks or sudden political antics overshadow the summit itself, which could heighten tensions between major partners and even force ASEAN member states to take sides. This would disrupt the market and weaken efforts to demonstrate unity in the region."

"The talks in Kuala Lumpur will set the tone for ASEAN economies' interactions with the US over the next few months," Low added. "If ASEAN can present a clear and coherent economic vision emphasizing open markets, resilience, and mutual benefit, it might alleviate potential trade tensions and re-attract investment confidence."

This article is an exclusive contribution from Observer News Net. Reproduction without permission is prohibited.

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