What's it like to deal with brutal US tariffs? Ask Malaysia

It has become a familiar strategy in South-east Asia. Companies from China, coveting the American market but blocked by tariffs, do an end run.

- Alexandra Stevenson and Zunaira Saieed

KUALA LUMPUR - They pour into a country, opening factories and filling supply chains. They invest billions of dollars and create jobs and business opportunities. The local economy prospers.

US President Donald Trump wants to stop that trade. On Aug 1, he unveiled a new layer of tariffs set at a global rate of 40 per cent on all goods that move through a third country before they get to the United States. The tariffs are aimed at stopping trans-shipment, a practice the administration says has allowed Chinese-made goods to skirt punitive tariffs.

The policy landed with a thunderbolt in South-east Asia, where Chinese investment has helped the economies of poorer neighbours grow more quickly. A crackdown on trans-shipment will be an economic blow.

It also complicates the supply chain in South-east Asia, which depends heavily on Chinese raw materials and components. From Vietnam to Cambodia to Indonesia, officials and executives are rushing to assess the consequences.

The new tariffs raise hard questions for countries that have long used Chinese components to make the final products they ship to the US. Does the Trump administration, which has yet to detail how it would enforce the new trans-shipment tariffs, want to tax it all?

One country offers a case study that others could follow for what to do next: Malaysia.

Over the past decade, Malaysia rose to become one of the world's biggest makers of solar panels. Ten companies, most of them Chinese, shovelled US$15 billion (S$19.3 billion) into factories around the country, creating tens of thousands of jobs.

Then, under former president Joe Biden, the US put tariffs on solar equipment coming from Malaysia of as much as 250 per cent. Today, just two solar panel makers remain and one of them has ceased much of its production.