Southeast Asia central to global trade response
In Brief
Southeast Asia was hard hit by US President Donald Trump’s so-called Liberation Day tariffs given its high integration into global value chains. Leaders were quick to declare they will not retaliate with tariffs of their own and ASEAN has begun to monitor developments and coordinate collective responses. If the reciprocal tariffs are reinstated, the rules-based international economic order is at risk. ASEAN can help to fill a leadership vacuum in multilateralism, using its centrality and working as a group.
The response to US tariffs from Southeast Asia has so far been a masterclass. Asia’s success in integrating into global value chains — and being the most efficient producer of goods that the world wants and needs — meant that the region was hard hit by US President Donald Trump’s so-called Liberation Day tariffs on 2 April 2025.
Indonesian President Prabowo Subianto, Malaysian Prime Minister Anwar Ibrahim and Singaporean Prime Minister Lawrence Wong were quick to declare they will not retaliate with tariffs of their own. That would merely add to the costs for citizens.
ASEAN Economic Ministers had already agreed in February to cooperate in the face of looming US tariffs and manage surges of Chinese imports locked out of the US market by using World Trade Organization-consistent trade remedies. The ministers convened a special meeting on 10 April and created a taskforce to monitor developments and coordinate collective responses. An ASEAN Leaders’ Meeting has been called for early May.
This initial response reflects the structure of interests in Southeast Asia where development ambitions, prosperity and security have depended on open economies integrating into the global economy. The principles of openness, equality, cooperation and multilateralism are entrenched in the ASEAN DNA, even if not practiced perfectly.
The 90-day pause on US tariffs buys some time. But the threat is far from over and things are likely going to get worse.
The United States and China have locked horns, escalating the tariff rate to 145 per cent tariffs on all Chinese imports into the United States and 125 per cent on all US goods entering China. The US–China trade relationship — until very recently the largest in the world — is decoupling rapidly. The pressure will build massively on ‘connector’ countries like those in Southeast Asia that are seen by the United States now as the lengthening of China’s supply chain.
If the reciprocal tariffs are reinstated, they will lead to diverted trade, diverted investment and increasingly volatile capital flows, mixed with US policy uncertainty rocking global equity and bond markets. It doesn’t stop there. The risk of tariff contagion and currency wars is growing, as is the danger of a race to devalue or depreciate currencies to make exports more competitive.
At risk is the rules-based international economic order. The current trajectorytowards a world of ‘might is right’ would threaten economic and political security globally, but especially in Asia.
In a widely praised video message, Wong warned the Singaporean people of the dangerous new world, the risks going forward and the Singaporean response. Wong suggests that ‘the era of rules-based globalisation and free trade is over’. The era of US leadership might be over but Wong’s declaration that it must lead to abandonment of global rules is premature.
Any single country may be powerless to reverse the trajectory but a US retreat from the system it led the creation of and enforced for 70 years need not be its end. Action by the rest of the world can help avoid the United States taking the system down with it. It’s important to understand that the United States is now only 11 per cent of global trade.
The next phase of ASEAN’s response will need to consider these global interests. It can help to fill a leadership vacuum in multilateralism. If ASEAN does what’s in its interests consistent with its principles, that will contribute to global efforts to protect the rules-based multilateral trading system. That includes avoiding retaliation that would just bring more economic pain, using measures consistent with rules and institutions ASEAN has committed to, and continuing to work as a group. Deviating from those guiding principles may unravel ASEAN.
ASEAN is not only central to its Southeast Asian member states, it is central to broader Asian cooperation. ASEAN should use its centrality, or risk losing it.
ASEAN will find willing partners in its own region. The foreign ministers of China, Japan and South Korea met a few days before the announcement of Trump’s tariffs, agreeing to jointly respond and strengthen the implementation of the Regional Comprehensive Economic Partnership (RCEP), the 15-country free trade agreement that was created and is led by ASEAN.
RCEP is the most promising of the ASEAN-centred institutions to coordinate broader collective action and resolve regional challenges like surges of Chinese imports. It has a ministerial process that needs to be convened before the usual end of year meeting. An RCEP leaders’ process can be activated by ASEAN as the circumstances demand.
Many countries hit by the reciprocal tariffs will try to negotiate with the United States because of the adverse impact on their exports, growth and jobs, especially because the most impacted sectors tend to be labour-intensive. The White House will negotiate with countries one on one but ASEAN countries will want to coordinate and avoid deals that harm ASEAN as a group.
Japan, one of the first to start formal talks, has not reported much progress — and as a key US ally, represents the first real test of negotiation as a strategy. What is happening in the United States and its policies, is also leading to fears of recession, an adverse external environment and potential negative shocks.
The right response for ASEAN economies is to manage the external shocks by strengthening the domestic economy through appropriate macroeconomic policies, well-targeted programmes to address those impacted and a comprehensive package of deregulation and structural reforms. Doing so in tandem with neighbours will build confidence and bring larger benefits in Southeast Asia.
By leveraging open regionalism and its centrality, the bloc can also do more than protect its strategic interests. ASEAN can mobilise a coalition of willing partners to defend their interests in the multilateral system. And Southeast Asia will be able to weather the biggest threat to its economic and political security since the creation of ASEAN.
Mari Pangestu is Professor of International Economics at the University of Indonesia and a former Indonesia trade minister.
Shiro Armstrong is Professor of Economics in the Crawford School of Public Policy at The Australian National University.
A version of this piece was originally published here by Channel News Asia.