US adds ‘poison pills’ to Asia trade pacts to counter China
Conditions inserted by Washington into tariff deals with Cambodia and Malaysia seen as ‘loyalty test’
The Trump administration has added “poison pill” termination clauses to trade pacts with south-east Asian countries, creating a new diplomatic weapon in Washington’s strategic competition with China. The clauses, embedded in two new deals signed with Malaysia and Cambodia last week, threaten to end the agreements if either country signs a rival pact that jeopardises “essential US interests” or “poses a material threat” to US security.
Trade experts say the highly unusual and sweeping clauses amount to a “loyalty test” for smaller countries that also have close trading relationships with China, and had the potential to reshape future US trade negotiations in south-east Asia and beyond. “This is the US protecting its market access strength through these agreements to try and reshape the ‘factory Asia’ that has developed over recent decades,” said Simon Evenett, professor of geopolitics and strategy at IMD business school in Lausanne, Switzerland.
Evenett said the clauses were so broad that they handed the US unilateral powers to terminate the agreements, giving Washington fresh leverage across the region. The agreement with Malaysia also includes a provision requiring it to align with US sanctions and other economic restrictions.
“Ultimately, poison pill provisions transform trade agreements from purely commercial instruments into tools for managing partner countries’ broader foreign economic policy orientation,” Evenett wrote in a paper this week. Although there is a partial legal precedent for poison pills in the 2020 US-Mexico-Canada Agreement, Evenett said the USMCA clause had legally defined triggers, in contrast to the broad conditions in the Malaysia and Cambodia pacts.
Sam Lowe, a trade expert at advisory group Flint Global, said the agreements that Malaysia and Cambodia signed with the US were essentially tactical. “First and foremost they’re attempts to mitigate the excesses of the Trump administration trade policy and they’ll work until they don’t. At which point you’ll have to do something different,” he said.
Maria Demertzis, head of the economy strategy centre at the Conference Board think-tank in Brussels, said the poison pills were “another nail in the coffin” of multilateralism and reflected US concerns about China’s efforts to dominate regional supply chains, although it remains to be seen to what extent they would limit or slow the integration of supply chains with China. “It’s [US President Donald] Trump saying ‘I’m the big guy, you deal with me’, and you have to ask yourself what bargaining power do these countries have to not have the poison pills. The aim is to prevent China from penetrating the US via these Asean countries,” she added.
The poison pill clauses come on top of 40 per cent “transshipment” tariffs, which the US is considering applying to Chinese-made goods that are rerouted through south-east Asian ports, and are viewed as driving a
between China and its regional trade partners. Trade analysts will be watching the outcome of ongoing US ‘reciprocal tariff’ negotiations with other countries in south-east Asia, including Thailand and Vietnam, to see if they also include poison pill conditions.
Malaysia’s trade deal has triggered a backlash in the south-east Asian country, with critics saying it has compromised its sovereignty and long-standing neutrality on foreign policy. Malaysia’s trade ministry has insisted the US does not have the power to “compel Malaysia to make any decision. They simply require that discussions or consultations be held before any action is taken”.
The trade agreements with Cambodia and Malaysia were signed as part of a dealmaking blitz by Trump on his recent trip to Kuala Lumpur to meet leaders from the 11-member Association of Southeast Asian Nations. Negotiations with many countries in the region had initially been a low priority for Washington, but interactions between Trump and the leaders of Cambodia and Thailand over a peace deal following a violent border dispute during the summer reinvigorated trade talks.
Both Asian countries — along with Malaysia, which brokered the peace talks and hosted the Asean meeting — saw their tariffs on imports to the US drop to 19 per cent from as high as 49 per cent. However, a trade deal between the US and Thailand has been held up due to the recent change of government in Bangkok. Talks with Vietnam are proving more difficult. “Hanoi is digging in for better terms — a strategy that carries risks too — and it is aggrieved that it faces a reciprocal tariff rate of 20 per cent while most other Asean countries received 19 per cent,” said Peter Mumford, head of south-east Asia at the Eurasia Group.
The coercive conditions in the Cambodia and Malaysia deals raise the stakes for smaller Asean nations that are looking to hedge their bets in the region between China, often a major supplier, and the US, a valuable export market. Countries in the region have long had to maintain a delicate balancing act by keeping good relations between the two.
In the weeks following Trump’s announcement of his ‘liberation day’ tariffs in April, Chinese President Xi Jinping embarked on a tour of south-east Asian countries to
. He also warned that there would be consequences for any moves by the US to try to squeeze China in any trade negotiations with its regional neighbours. China’s ministry of foreign affairs said Beijing “has always advocated that all parties resolve trade and economic disputes through dialogue and consultation, while relevant negotiations and agreements should not harm third parties”.
In a sign that Asean nations would continue to try to play it both ways, following Trump’s trip to Kuala Lumpur last week, the Asean grouping signed an updated free trade agreement with China to build on the $771bn of trade between the two sides in 2024. A Trump administration official said the US aimed to “eliminate destructive trade deficits and protect American industries and workers by using tariffs and bilateral negotiations and agreements”.
