Malaysia’s former deputy minister of international trade and industry emphasized that while Southeast Asian countries continue to negotiate with the United States for a favorable economic landing, they are also strengthening ties with other global partners, not in opposition to the US, but in support of their own national interest. The situation presents a complex scenario for export-driven economies that rely heavily on both the US and China.
The economic impact of the trade conflict is already evident. Goldman Sachs has revised its growth forecasts for Asian emerging markets, citing vulnerability due to their dependence on global trade. Vietnam’s GDP is now projected at 5.3%, down from an earlier estimate of 6.5%. Similarly, Malaysia's forecast has been cut to 3.8%, and Thailand’s to just 1.5%. These reductions underscore the toll that rising tariffs and trade unpredictability are having on the region.
These countries were particularly hard-hit following US President Donald Trump’s declaration of "Liberation Day," which included plans to reinstate up to 49% tariffs after a temporary 90-day reduction period. With China maintaining its strategic and developmental partnerships in the region, many Southeast Asian countries now find themselves in a difficult balancing act.
China has also been proactive. Earlier this month, Chinese President Xi Jinping visited several Southeast Asian nations, including Vietnam, Malaysia, and Cambodia. These visits were part of Beijing's larger effort to position itself as a stable ally and strengthen South-South relations. During these visits, Xi emphasized the importance of uniting developing nations under common goals and enhancing mutual economic cooperation.
The push for greater regional trade has gained momentum. According to UNCTAD Secretary-General Rebeca Grynspan, intra-regional trade among Global South countries is growing at a faster rate than trade between developed nations. This trend suggests a significant shift in global trade dynamics, driven by the evolving trade policies of the United States and the growing desire among developing nations to reduce dependence on any single external power.
Anwar Ibrahim, Malaysia’s prime minister and current ASEAN chair, has echoed this sentiment, calling for stronger economic integration across the region. He stressed the importance of ASEAN nations working together to build a more resilient economic framework in the face of external shocks.
While no single solution exists to fully shield these economies from external volatility, economists note that a combination of short- and medium-term strategies will be key. In the short run, governments may resort to monetary and fiscal measures to support sectors most impacted by tariffs. Over the medium term, the focus is shifting toward diversifying both trade and investment partnerships.
A notable example is the continued relevance of the “China+1” strategy, where companies that once depended entirely on China for manufacturing are now looking at alternative hubs in Southeast Asia. During Trump’s first term, many such shifts occurred, and this trend continues to benefit nations like Cambodia, Vietnam, and Indonesia.
Data from the World Bank indicates that Cambodia’s export-to-GDP ratio rose significantly after the imposition of the first round of US tariffs on China. In 2018, exports made up 55.5% of Cambodia’s GDP. By 2023, that number had climbed to nearly 67%. This trend highlights the growing significance of Southeast Asia as a manufacturing and export hub in the changing global trade landscape.
Miguel Chanco, a leading economist at Pantheon Macroeconomics, observes that despite growing tensions, Southeast Asia continues to appeal to multinational companies as an attractive alternative to China. Lower labor costs, political stability, and improving infrastructure make these countries ideal for long-term investment. He noted that while new global supply chains won’t form instantly, the groundwork is already being laid, and the momentum is shifting in favor of these emerging markets.
Southeast Asia is navigating the choppy waters of global trade disruption not by choosing sides but by strengthening its own economic resilience. Through increased intra-regional cooperation, diversification of trade partners, and strategic alignment with global trends like the China+1 model, the region is positioning itself for sustained growth despite external uncertainties.
