THE US administration’s approach to tariffs poses significant long-term implications for Asean, a region deeply reliant on international trade.
Under President Donald Trump, tariff hikes have fuelled fears of a trade war, creating uncertainty in global markets.
Adding to his trade tirade, his recent remarks about taking over Gaza and also in labelling Ukrainian President Volodymyr Zelensky a “dictator” have also attracted responses from allies and neutrals alike.
The world is now at an interesting crossroads and Asean must adapt to a shifting trade landscape rather than expect a return to pre-Trump policies soon, with new trade rules almost par for the course.
The idea of reshoring industries back to the US is far more complicated than Trump may assume since these sectors are deeply integrated into global supply chains.
These industries thrive due to cost-effective labour and established supply chains, making relocation costly and inefficient.
For example, American cars are manufactured in Mexico, and the system operates smoothly. Disrupting these established networks could create more inefficiencies than benefits. While not directly targeted at them, rising US protectionism poses a threat to Asean nations and their role in global supply chains.
Trickle-down effect
Asean economies are tightly connected to global supply chains through trade with China. Tariffs from either side can impact supply and demand in Southeast Asia.
China’s economic growth is projected to slow down to 4.5% in 2025 and further decline to 4.2% in 2026. Policymakers may introduce stimulus measures, including rate cuts and a debt package, to counter US tariffs.
Malaysia’s economy faces slowing growth due to weak manufacturing, agriculture and mining sectors, compounded by US tariffs and reduced demand from China.
Similarly, Vietnam is adjusting its trade strategy by increasing US agricultural imports
to ease trade tensions while the Philippines’ export sector, particularly mechanical and electrical manufacturing, risks significant losses if tariffs rise.
Trump’s move may not be a long-term strategy but rather a high-stakes negotiation tactic. While this may work in some scenarios, China will remain resistant, making the outcome uncertain.
Asean’s position
Asean must strengthen regional trade cooperation and reduce dependence on China-linked supply chains to navigate emerging challenges effectively through diversifying trade and bolstering local industries.
The region can enhance economic resilience, cushion global trade shocks and mitigate risks through stronger intra-Asean trade and investment.
Singapore is vulnerable to disruptions to the global supply chains due to its heavy reliance on international trade, leaving the country exposed to economic downturns, weakened trade relationships and declining investor confidence.
Indonesia is preparing to face the potential fallout from the US-China trade war by making local goods and services more attractive in the global market and a possibility of rolling out a free trade agreement, targeting to reduce tariffs and facilitate smoother trade relations.
Trade blocs may strengthen partnerships, possibly isolating the US and reducing its global influence.
Governments must remember that the economies are structured in a way that
can have a domino effect, with decisions implemented affecting the majority. Thus, they must balance protectionism and economic openness.
Bringing manufacturing jobs back to the US is unrealistic amid today’s tech-driven shift. Asean should capitalise on its strengths to become a global production and innovation hub while expanding trade with emerging markets.
Bridging divide with the US
While Asean must focus on strengthening intraregional ties and diversifying trade partnerships, it is equally crucial to engage directly with the US through constructive economic diplomacy.
Asean can advocate for sector-specific exemptions from tariffs by emphasising the mutual benefits of existing trade relationships. Establishing regular dialogues between Asean trade ministers and US policymakers can help identify areas of cooperation and reduce tensions.
Moreover, highlighting Asean’s role in global supply chains as a key collaborator in producing goods worldwide may encourage the US to adopt more nuanced trade policies.
By maintaining open channels and fostering mutual understanding, Asean can protect its economic interests while preserving strong ties with one of its most significant trade partners.
Tariff trap – protectionism vs efficiency
Manufacturing is a global effort; no single product is composed entirely of components from one country.
By attempting to reshore industries, the US faces risks triggering a chain reaction that could ultimately hurt not only Asean but also the US economy.
China’s production cuts, export restrictions on metals, like tungsten and molybdenum,
and an economic slowdown due to tariffs significantly has reduced Asean’s export volumes.
The decline in industrial output has lowered demand for raw materials and intermediate goods, disrupting industries that rely on stable trade flows.
These challenges highlight Asean’s economic dependence on China, emphasising the urgent need to diversify trade partnerships, enhance supply chain resilience and invest in domestic industries.
Failure to adapt may prolong Asean’s instability and ultimately harm the US economy. Asean is not directly targeted but it can still face economic repercussions.
The region’s best strategy is continued engagement, innovation and economic diplomacy.
Strengthening regional trade agreements, diversifying markets and embracing digital trade will help Asean navigate the changing landscape. If the US builds walls, Asean must build bridges.
Datuk Seri Vijay Eswaran is an Asian thought leader, philanthropist, speaker and author.
He is the founder and executive chairman
of the QI Group of Companies,
a multinational conglomerate.
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