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Amid US-China trade tensions, third countries such as Japan or Asean members are embracing a so-called “US Plus One” business strategy, diversifying partners and taking advantage of tariff gaps to expand exports and strengthen economic resilience despite Trump-era uncertainties.

Prof Fukunari Kimura, president of the Institute of Developing Economies at the Japan External Trade Organisation (Jetro) and professor emeritus of Keio University, said, “For companies in third countries, it is often difficult to predict what trade policies the US will actually implement. Although things have calmed somewhat recently, this is far from over.”

He said policy uncertainty is affecting production networks in East Asia, making strategic responses essential.

Trade diversion

A key tactic of the US Plus One strategy is exploiting trade diversion. Trump 2.0 tariffs apply unevenly across countries, regardless of whether they are allies or non-allies, with China facing the highest rates. This creates openings for third countries, he said.

Kimura: Strategic responses essential

Prof Kimura said nations such as Thailand and Vietnam have benefited from this effect, replacing Chinese exports to the US and increasing market share. The simultaneous imposition of tariffs across multiple exporters also reduces negative impacts, keeping GDP effects modest.

He said empirical studies indicate that Vietnam, Thailand, and Cambodia experienced a “positive trade diversion effect”, increasing their exports as Chinese goods became more expensive. Taiwan, South Korea, and other neutral players have also benefited, underscoring the importance of timing and market positioning in leveraging tariff differentials.

“Countries must seize the advantages presented by tariff differentials, but they also need to prepare for potential disruptions, including transhipment restrictions and decoupling of supply chains from China,” Prof Kimura said.

“Careful monitoring of tariffs on semiconductors, smartphones, and critical components is essential for planning long-term industrial strategies.”

Exporters with strong market positions, such as Japanese automotive firms, can often absorb or mitigate tariff impacts, while smaller or developing countries focus on strategic niche exports.

Diversifying partners

Beyond trade diversion, diversification is emerging as a second pillar of resilience. Third countries are increasingly pursuing new markets and forging free-trade agreements (FTAs) to reduce over-reliance on any single economy.

Indonesia recently reached a substantial agreement with the EU, reflecting the accelerated movement towards regional and intercontinental FTAs. The US Plus One approach mirrors the earlier “China Plus One” model, providing countries with a practical hedge against uncertainty while maintaining access to US markets, he said.

Japan aims to expand the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) membership to strengthen multilateral trade rules, while the Association of Southeast Asian Nations (Asean) is accelerating agreements with partners like the EU.

Foreign direct investment (FDI) also plays an important role in the US Plus One strategy. Companies facing tariff barriers in the US may choose to establish local production bases, effectively “jumping” over trade restrictions.

Oba: US foreign policy inconsistent

Japanese automakers have employed this approach for years, and selected Asean firms are now exploring similar paths. Safeguards, anti-dumping duties, and countervailing measures under World Trade Organisation (WTO) rules offer additional tools to manage sudden import surges, particularly from China, which is experiencing overcapacity in sectors such as electric vehicles, steel, and solar panels.

These strategies reflect the need for a pragmatic balance: third countries must maintain competitiveness in US markets while developing robust regional networks and protective mechanisms to shield domestic industries from unpredictable shocks, he said.

By actively strengthening rule-based frameworks within their own economic blocs, countries can mitigate the weakening of international trading rules caused by unilateral US measures and the paralysis of the WTO Appellate Body.

Rules-based trade

While US trade policy remains unpredictable, as Prof Kimura called it “terrible”, third countries are taking measures to uphold trade rules among themselves.

Initiatives like the Multi-Party Interim Appeal Arbitration (MPIA) and strengthened regional FTAs provide a framework for predictable trade, even amid US policy uncertainty, he said.

These mechanisms help stabilise international production networks and ensure that third countries can act strategically.

Ultimately, the US Plus One strategy allows third countries to reduce risk, diversify markets, and capitalise on opportunities arising from tariff differentials. By combining trade diversion, partner diversification, FDI, and rule-based measures, Japan, Asean, and other third countries are positioning themselves to thrive despite global trade volatility.

Security interests

Beyond economic risks, the uncertainty of US tariff policy also affects strategic cooperation in the region. Japan’s reliance on the US alliance has come under scrutiny, particularly given conflicting priorities in Washington. Prof Mie Oba of Kanagawa University noted that tariff impositions and inconsistent foreign policy stances generate significant uncertainty for Japan and other like-minded nations.

“The Trump administration still says that the Indo-Pacific is very important, but on the other hand, they imposed a very high tariff rate, not only to Japan but also to other Indo-Pacific countries,” Prof Oba said. “I’m wondering which is the US priority: to counter China and enhance cooperation with like-minded countries, or to revitalise their own economy, including industry within the US? If the latter is the priority, maybe they do not care about the interests of Japan and other partners in the region.”

She also highlighted concerns over US commitment to Taiwan. “The Biden administration’s stance towards Taiwan was very supportive, but the Trump administration’s posture was less so. They rather accept the one-China policy. If something happened around Japan, to what extent will the US dispatch their troops to protect us?”