SINGAPORE: US President Donald Trump's "Liberation Day" tariffs have hit Southeast Asia particularly hard. Although these tariffs have come down somewhat, they are still significant.
The question facing exporters is whether to "eat" the tariffs by reducing profit margins, or to "pass through" the tariffs to importers in higher prices and risk loss of market share. It is likely that Southeast Asian exporters will eventually opt for the latter, like their competitors, thus resulting in more negative effects on the US than any other economy.
Trump thinks - quite erroneously - that the burden of tariffs falls on foreign sellers, not domestic buyers, thereby limiting their negative impacts. This will depend on how Southeast Asian exporters, and their competitors, respond.
There is an extensive body of literature that studies the determinants and measurement of the "pass-through" of policy changes, mainly exchange rates but also tariffs, to prices of internationally traded goods. Such studies can shed light on the issue. The literature suggests that pass-through may be incomplete depending on the degree of competition facing sellers and buyers, and that it can vary in the short and long run. That is, the degree of pass-through is product- and time-dependent.
The tariff can be absorbed by the exporter, as Trump believes, or by the importer, who has to pay the tariff. When the importer resells to a retailer, then there is another level at which the tariff can be absorbed. In a post on Truth Social on May 17, Trump said, "Between Walmart and China, they should, as is said, 'EAT THE TARIFFS', and not charge valued customers ANYTHING".