For Southeast Asian nations, the time is now to seize control of their future. They endure the burdens of a new global trade war—in particular, from the recent wave of trade protectionism unleashed by the United States. U.S. President Donald Trump’s declaration of “Liberation Day” has left some economies exposed. Their export-driven growth, which flourished under the tailwinds provided by the goldilocks approaches of Trump’s first administration, is under siege.
The region’s economic landscape has shifted dramatically. In 2018, Cambodia’s exports of goods and services comprised 55.5% of the country’s gross domestic product (GDP). Exports continued to play an expanding role in the nation’s economy, with this share up to a remarkable 66.9% by 2023. With the tariffication of all non-ad valorem tariffs, a full-blown trade war would be devastating for these export-dependent nations. These tariffs could be as high as 49% once the temporary 10% reduction is removed.
Despite such headwinds, one man is on the move—Anwar Ibrahim, prime minister of Malaysia and current ASEAN rotating chair. He has advocated for greater trade and economic integration across the region. His speech underscores the idea of what Southeast Asian countries themselves need to do, working with each other more than ever as they travel through these stormy seas.
Just last week, Chinese President Xi Jinping visited Vietnam, Malaysia and Cambodia. His goals were to further showcase Beijing as a stabilizing influence in the region. This diplomatic outreach is a key part of shoring up relations and drawing a counterweight to U.S. protectionist trade policies.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, has much high hopes for the region’s economies. He thinks they might be better long-term export manufacturing alternatives to China, especially if China’s wages and quality issues persist. Lavanya Venkateswaran, a senior ASEAN economist at OCBC Bank, echoes that sentiment. Importantly, she illustrates the region’s uneasy status as they work to navigate important ties with both China and the U.S.
With technologies emerging almost daily, or at the minimum yearly, trade dynamics are moving faster than we can all keep up. The new U.S. trade policy takes South-South trade to the next level. Rebeca Grynspan highlights this trend, stating, “One interesting indicator that we have from the last year, in this century, is that South-South trade has already been growing faster than North-North trade.” She adds that “the acceleration of South-South trade…will take a new dynamism because of the new trade policy of the U.S.”
For all these unprecedented opportunities for collaborative, regional action, countries across Southeast Asia walk a tightrope. Ong Kian Ming, Malaysia’s former deputy minister of international trade and industry, noted that while negotiations with the U.S. are essential for a soft landing amidst escalating tariffs, it is crucial for Malaysia to continue working with other nations. He stated, “But at the same time, it doesn’t prevent us from working with other countries — not to screw the U.S., but to benefit ourselves.”
The modest economic forecasts for this region, Southeast Asia, tell you everything about these uncertain times. Analysts have further downgraded Malaysia’s economic growth to 3.8% next year from a previous forecast of 4.7%. Likewise, Thailand’s growth is now projected to slow to 1.5%, down from a previous forecast of 2.7%. The outlook for Vietnam does not seem so rosy. Newly revised, downwards, GDP growth estimates for 2025 now stand at only 5.3%, far short of the administration’s rosy consensus estimate of 6.5%.
Even across the Pacific, Southeast Asian nations are preparing for the riptide effects of U.S. tariff policy. They need to balance the favours of the two superpowers, looking for opportunities for trade-related growth while avoiding damage from the current US-China trade war.
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