ASEAN and the China-US Trade War

The Diplomat

02-07-2025

The Diplomat author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Sharon Seah – senior fellow and coordinator at the ASEAN Studies Centre, ISEAS Yusof Ishak Institute in Singapore – is the 468th in 'The Trans-Pacific View Insight Series.'
Describe the regional vibe at the recent ASEAN Summit toward U.S. President Donald Trump's tariff threats.
One of the greatest preoccupations of regional leaders since April 2, 2025 has been with the alarming levels of rising protectionism and disruptive actions seeking to undermine the open, free, multilateral trading system. Southeast Asia has benefited from an open, free, and fair global order for many decades since ASEAN countries' independence. An open and free global trading system, undergirded by robust and strong international law, has served small states well. Trade is ASEAN's lifeline. Without trade, ASEAN cannot maintain its relevance with the major partners. Because of these concerns, ASEAN leaders delivered a statement calling out unilateral and retaliatory actions that risk fragmenting the global economic order. They further instructed the officials to track the risks of trade diversions and engage in negotiations with partners, and also reiterated their commitment to maintaining open and secure trade flows and strengthening supply chain resilience.
In the face of such volatility and uncertainty, accelerating ASEAN's regional economic integration has become a top priority agenda. This includes driving the negotiations for the ASEAN Digital Economy Framework, upgrading ASEAN's Trade in Goods Agreement, upgrading different ASEAN+ 1 FTAs to future proof and modernize these agreements, strengthening and increasing intra-ASEAN trade (which includes the removal of non-tariff barriers), and creating safety nets for the region's most vulnerable workers and industries.
Analyze how Southeast Asian capitals are managing relations with Washington while concurrently balancing their countries' strategic position in the broader China-U.S. trade war.
President Trump's tariffs are currently at the baseline of 10 percent, but the 90-day 'pause' on higher rates is set to expire by July 8. The tariffs are causing much anxiety in capitals around Southeast Asia. Some countries like Vietnam, Cambodia, and Laos – which are subject to some of the highest levels of tariffs – have yet to conclusively reach a settlement.
The silver lining, at least at the time of response to this question, is that the U.S. has reportedly 'reached a deal' with China on the export of rare earth elements and continued acceptance of Chinese students in U.S. higher education institutions. Regional governments know enough, by now, not to take such news at face value. Anything can change overnight.
Conventional knowledge tells us that if the U.S. is more or less happy with the Chinese deal, then perhaps the level of pressure and scrutiny on Southeast Asia would come down. One of the biggest issues under discussion is how Southeast Asia provides a backdoor for Chinese goods to flow through to the U.S. and how the region can help to stem this flow. But these are not conventional times, and everything is fair game to the current administration.
With the U.S. now focusing on the Iran strikes and counter-responses, it's an open question whether there is bandwidth to conclude more trade deals with countries ahead of the July 8 deadline. With the distraction of the Iran-Israel conflict and potential for widening wars in the Middle East, it remains to be seen if President Trump would pay sufficient attention to the Pandora's box of tariffs.
Examine how Southeast Asian countries are protecting specific industries and trans-shipment capabilities that advance their respective national interests.
Export re-direction from China to Southeast Asia is a real concern. Many Southeast Asian economies are heavily export-oriented so having to deal with the double whammy of tariff imposition from one of their biggest markets (the U.S.) as well as re-direction from one of their biggest trading partners (China) is very challenging. It would mean that domestic manufacturing and export industries will be impacted.
For example, the Cambodian garment industry's biggest export destination is the U.S. but with 49 percent tariffs, it would be difficult for exporters to bear the cost. In effect, the industry will see greater cancellation of orders because U.S. retailers would not be willing to bear this cost either.
Identify supply chain risks and opportunities facing Southeast Asian companies amid China-U.S. trade tensions.
Assuming that the U.S.-Iran conflict can be contained, there is currently the risk that the Strait of Hormuz, where much of Asia-Europe trade transits, could be blockaded. This is the most significant development that can disrupt trade flows and importantly the flow of essential goods such as LNG and petroleum to Asia. U.S.-China trade tensions, for the moment, will take a backseat to what is happening in the Middle East.
As seen the last few times when the world experienced major blockages of waterways such as the Suez Canal, the business costs of diversifying access markets, halting production, manufacturing, and delaying deliveries are tremendously high. Southeast Asian companies have learned to diversify into different markets and looked for new suppliers that are geographically not reliant on open routes. It is also an opportunity for companies to invest in better R&D to create higher value goods in order to claim a place in the supply chains.
Assess the geopolitical implications of ASEAN states' calculations in negotiating tariffs with Washington.
Even if the conflict in the Middle East recedes, the environment for constructive negotiations on trade has deteriorated, as the recently concluded G-7 summit showed. The outlook therefore for future trade gatherings such as the G-20 in Seoul is dampened, especially if the U.S. representative is distracted and unwilling to negotiate.
The question troubling many trading nations of the world is whether the rate of diminishing returns in pursuing the U.S. for economic deals is worthwhile or whether it would be better to deepen relations with other partners such as China, the EU, Japan, South Korea, etc. The chances of ASEAN leaders getting a meeting with President Trump at this year's ASEAN Summit or on invitation to Washington D.C. have diminished. In fact, from the announcement of Liberation Day tariffs, few world leaders have managed to speak to President Trump and even if they did secure something of a 'deal,' may find the terms changing over time.
It would seem the better strategy is to build ASEAN's own economic resilience up by deepening integration, increasing intra-regional trade from the current levels of 22 percent, attracting greater FDI from nontraditional partners such as the Gulf states, and accelerating the adoption of ease of business schemes such as the ASEAN Single Window Plus (which is meant to link ASEAN countries' customs/border systems with those of its major trading partners to facilitate greater ease of transactions) and cross-border e-payment systems etc.