Employees work on the production line of solar panels in Suqian, China. After the Biden administration initiated an investigation into unfair practices by Chinese solar companies in Malaysia, Cambodia, Vietnam and Thailand, Chinese companies began to slow some of their operations. Photo / Getty Images
It’s become a familiar strategy in Southeast Asia.
Companies from China, coveting the American market but blocked by tariffs, do an end run.
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.
United States President Donald Trump wants to stop that trade.
Last week he unveiled a new layer of tariffs — set at a global rate of 40% — on all goods that move through a third country before they get to the United States.
The tariffs are aimed at stopping transshipment, a practice the Administration says has allowed Chinese-made goods to skirt punitive tariffs.
The policy landed with a thunderbolt in Southeast Asia, where Chinese investment has helped the economies of poorer neighbours grow more quickly.
A crackdown on transshipment will be an economic blow. It also complicates the supply chain in Southeast 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 transshipment tariffs, want to tax it all?
One country offers a case study 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 ($25.3b) into factories around the country, creating tens of thousands of jobs.
Then, under President Joe Biden, the US put tariffs on solar equipment coming from Malaysia of as much as 250%.
Today, just two solar panel makers remain and one of them has ceased much of its production.
The upheaval has been a wake-up call for Malaysia, a nation of more than 35 million people that is rethinking how to power its future economic growth.
“We’re trying to think about ourselves not just as recipients of investment, but actually creators of technology,” said Liew Chin Tong, the deputy minister of investment, trade and industry.
“We want to think of ourselves not as a production site, but also as a consumer site with a sizeable middle class.”
Officials in Malaysia, who had been trying to work out a trade deal, had said they were ready to work with the Trump Administration to stop companies from passing off Chinese-made goods as their own.
But they learned they would be hit with a base tariff of 19%. An additional 40% would be added for any goods deemed to have originated in China. Those are set to take effect this week.
The country finds itself caught squarely between the United States and China.
Malaysia believes that Chinese solar companies can play an important role in its attempts to increase renewable power sources.
Its goal over the next five years is for half of the country’s energy consumption to use clean sources like solar power.
Warehouses are stuffed with solar equipment that can no longer be exported to the US, and the Government wants companies to sell it to local solar farms.
One challenge for Malaysia is that it still needs China’s solar industry on its side.
More than 75% of the solar panels that Malaysia uses locally are imported from China, where prices are much cheaper because of Beijing’s industrial policies that encourage exports.
Longer term, Malaysia wants the Chinese companies to restart their mothballed factories to make solar panels for the domestic market.
More than any other region, Southeast Asia has felt the brunt of the trade war between the US and China that began in earnest during Trump’s first presidency.
Southeast Asian countries profited as Chinese and global multinationals relocated their factories out of China to avoid Trump’s first-term tariffs.
For Malaysia, the aim now is to blunt the collateral damage from the battle between the world’s two largest economies.
“I don’t like to see us just having to choose between US and China,” Liew said. “I want to see us strengthening ourselves.”
Both superpowers have loomed large in Malaysia.
American tech companies Nvidia, Intel and Texas Instruments built huge facilities to make semiconductors, seeing the country as a good location to hedge against the risks of doing business in China.
More than 600 American companies invested in Malaysia last year, said Siobhan Das, chief executive of the American Malaysian Chamber of Commerce.
Chinese investment has shaped Malaysia’s manufacturing sector, and China has ranked as a top investor in the country for the past decade.
Malaysia’s imports from China have nearly doubled over the past decade, according to Lee Heng Guie, executive director of the Socio-Economic Research Centre, a Malaysian think-tank.
It was also about a decade ago when Chinese solar companies began to invest in factories in Malaysia. The factories made everything for export to the US and other major markets like Europe.
“We knew we could not compete with the Chinese companies in the long run,” said Lisa Ong, chief executive at Malaysian Solar Resources, a solar company that shut its panel production facilities in 2013.
After seven years, the company found it was being outperformed on price and production capacity. Today it has switched its focus to building solar farms and importing panels from China.
After the Biden Administration initiated an investigation into unfair practices by Chinese solar companies in Malaysia, Cambodia, Vietnam and Thailand, Chinese companies began to slow some of their operations.
The investigation led to steep tariffs on a handful of Chinese solar companies operating in these countries and prompted most of them to abandon their factories in Malaysia.
The only Chinese company still making some solar panels in Malaysia is Longi, an industry giant.
When it opened its third Malaysian factory on the outskirts of Kuala Lumpur in 2023, it heralded the opening as a “pivotal moment in Longi’s global endeavours”.
Its executives boasted of creating 900 jobs and promised to increase the openings to 2000.
Instead of expanding, Longi has shut down several production lines at the facility. Today, much of the space at Longi’s plant is unused.
On one weekday last month, the parking lot was less than half full. Longi declined to comment for this article.
Longi has met Malaysian officials to discuss how to support more of the local supply chain, according to Justin Sim, the president of the Malaysian Photovoltaic and Sustainable Energy Industry Association.
He is pressing the Government to rebuild a domestic solar panel industry by harnessing the knowledge of Chinese companies like Longi.
“All the Chinese companies came here when there was not really any capacity or interest in building the local market,” Sim said.
“And then they all went bust or left because they were hit with tariffs from the US and Europe.”
Ong of Malaysian Solar Resources said she would not rule out her company going back to solar panel manufacturing, especially after the Chinese Government announced plans to scale back subsidies to companies.
Still, she is hesitant, citing the intense competitiveness of Chinese firms.
“I’m worried and a bit concerned about our future,” she said.
“Many Chinese nationals are migrating to Malaysia and they are a lot more industrious than many of us.”
This article originally appeared in The New York Times.
Written by: Alexandra Stevenson and Zunaira Saieed
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