Just six weeks into its term, the Trump Administration has shaken the global political and trade order to its foundations. So far, Asean countries have been spared direct assaults but it is only a matter of time before some countries in this region are specifically targeted. Eventually, as the damage from these big shifts spreads across the world, all Asean nations will find that their economic and security interests are at risk.
Anticipating this, Asean countries are crafting diverse responses, with some seeking to appease the US and others putting more effort into diversifying away from dependence on the US. Without a more coordinated Asean-wide effect, it is not clear how effective such approaches will be.
Trade wars, geo-political risks
The past weeks have clarified the dangers emanating from the new US administration: the relatively free trade the region has enjoyed has been undermined, a slower world economy, the gutting of basic norms of diplomatic conduct, and a wavering American commitment to security guarantees that sustained a stabilising balance of power in the world.
First, the expectation that Trump’s trade policies would not match his extreme rhetoric was too optimistic. So was the hope that a trade war could be avoided.
For Trump, large increases in tariffs are not just a negotiating ploy but a core element of his tool kit. He sees tariffs and other protectionist measures as vital pre-requisites for restoring American greatness in manufacturing, correcting the large US trade deficits, ensuring resilience against geo-political risks, and generating revenues to pay for his planned tax cuts. Sure, there will be deals done with Canada, Mexico and eventually China but even if there are concessions from the latter and some backdown from the US, the final outcome will be a much higher average level of tariffs than before Trump was sworn in.
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Moreover, it will not just be higher tariffs that America’s trade partners have to fear but wider forms of protectionism. Note how the new administration has proposed a new policy of charging shockingly high docking charges to any shipping line using Chinese-built ships to move goods into American ports.
In addition, China, Canada and Mexico have demonstrated that countries will retaliate against Trump’s tariffs even if this risks a trade war. While China’s counter-measures against the US have been measured and designed to keep the door open for negotiations, China has made it abundantly clear that it will not be pushed around. Canada countered immediately with increased tariffs on US goods and is also threatening to restrict the sale of electricity to the US and to boycott American goods. Since Trump is likely to follow through on his threats to impose even higher tariffs if these countries retaliate, we are in for a period of escalating trade aggression among these parties.
Thus, to all intents and purposes, we are now in a trade war. There is no reason why trade-reliant Asean will be exempt from the resulting increased protectionism. The region’s trade surplus with the US has significantly expanded in recent years while its Chinese supply-chain linkages open the region to the charge of facilitating Chinese exports to enter the US market by the back door.
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Second, there is a heightened risk of slower global growth. The early Q1 data for the US economy points to falling consumer confidence leading to people saving more and cutting back on spending. Increased uncertainty also appears to be causing firms to cut back on new business. With bond yields having risen, the higher cost of borrowing is also feeding into a slower housing market while simultaneously increasing financial stress among lower-income households. Trump’s tariffs and the retaliatory tariffs will also hurt global trade — which in turn will depress commodity prices and export demand. Greater business uncertainty over tariffs could also cause companies to rethink new foreign investment in the region. Trump’s unhappiness with American companies moving production abroad could also produce the same result.
A third danger stems from the unprecedented discourtesy extended to President Zelensky in his meeting in the Oval Office and the crude American demands for a share of Ukraine’s mineral wealth. Such treatment of smaller nations will certainly encourage some other big countries to behave in a similar fashion towards their smaller neighbours. In recent weeks, we have seen Rwanda invade its neighbour, the Democratic Republic of Congo, while Venezuela has renewed threats to seize territory it claims in its smaller neighbour, Guyana. A might-is-right world where big powers cut deals to exploit small ones will be a terrifying one for this region.
Fourth, unless the new administration backs away from its recent conduct towards Europe, the Western alliance will weaken to the point of ineffectiveness. If the US can walk away from a 75-year-old alliance, America’s allies elsewhere, especially in Asia, will wonder about the credibility of the US commitment to the security treaties and relationships they have with the US. As American security guarantees have helped maintain the balance of power in Asia, their weakening could lead to a riskier region.
The result is several areas of specific risk to the region.
First, as Washington ramps up scrutiny of Chinese trade circumvention, Vietnam and Thailand are exposed because their higher trade surpluses with the US have coincided with large inflows of Chinese foreign investment and fast-rising Chinese import reliance. In the first Trump term, Vietnam had come under attack for its trade practices, so the risk to Vietnam is a real one.
Second, Malaysia will also be impacted by the broad-based semiconductor tariffs which Trump has talked about. With about 20% of its exports to the US comprising semiconductors, Malaysia’s trade minister estimated that US tariffs could halve Malaysia’s trade growth this year.
Third, even Singapore could be hurt despite running a trade deficit with the US and being a signatory to a free trade agreement (FTA) with the US. The new US administration’s scrutiny of China’s evasion of US tech export restrictions has led to the accusation that Singapore companies facilitated Chinese AI start-up Deepseek’s acquisition of advanced Nvidia chips. Large numbers of Chinese companies have established a presence in Singapore, hoping that a Singapore-registered corporate entity would be less at risk from America’s hostile measures.
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Divergent responses in Asean
Worried by the Trump administration’s new approach, Asean governments have begun formulating policy responses to limit the fallout.
At the geo-political level, some Asean nations are responding to new risks by strategically pivoting towards other powers such as China and Russia or by strengthening ties with other middle powers in the region:
Indonesia overcame its initial reluctance to join the Brics grouping associated with China and Russia and is now a full member. Malaysia and Thailand, currently Brics partner countries, have also enthused about joining the grouping as full members. They have done so despite Trump’s threats against the Brics group.
Some Asean countries have opened up to Russia. Sergei Shoigu, Russia’s Secretary of the Security Council, was accorded a warm welcome in Indonesia, which has vowed to strengthen defence ties with Russia following the first-ever joint naval exercise with Russia last year. Similarly, Malaysian Prime Minister Anwar Ibrahim also met with Shoigu.
The Philippines, a US treaty ally, has proactively engaged with the new US administration. But it is hedging because it cannot be sure that the US might conclude some kind of grand bargain with China that leaves the country in a lurch. It is doing so by stepping up multilateral defence cooperation with like-minded middle powers — it signed a Reciprocal Access Agreement with Japan last year and is pursuing similar agreements with Canada, New Zealand and France. The Philippines and French naval forces also recently conducted joint naval exercises. The Philippines has also offered an olive branch to China by floating the possibility of withdrawing the American mid-range Typhon missile system from Philippine soil in exchange for an end to Chinese aggression.
In line with the global trend, we can also expect Asian defence budgets to extend their decade-long upward trajectory. Besides the weakened credibility of the US security guarantees, developments such as China’s military modernisation and North Korea’s increased hostilities also galvanised threat perceptions in the region and spurred defence spending. For example, Singapore will increase defence expenditure by 12.4% this year. As part of its military modernisation programme, it will procure two new submarines, while adding upgraded infantry fighting vehicles with anti-drone capabilities to its army. Its air force will replace existing maritime patrol aircraft in the coming years.
At another level, Asean is also moving to limit the economic fallout.
Several regional countries are scrambling to offer trade concessions that can help reduce their bilateral trade surpluses with the US. Thailand, for example, is already planning to increase the import of US ethane and agricultural products. Likewise, Vietnam is looking into massive purchases of Boeing planes, agricultural products and liquefied natural gas.
Vietnam’s Trade Minister Nguyen Hong Dien also promised that Vietnam would expand agricultural imports from the US. Besides trade, Vietnam has also pledged to support the repatriation of illegal Vietnamese migrants detained in the US, a marked departure from its previous foot-dragging.
Knowing that close supply chain links with China might expose a nation to American pressure, some countries are acting to reduce this import dependence on China. For example, Vietnam is diversifying its automotive supply chain, importing car parts and vehicles from several sources besides China, such as South Korea, Thailand, Japan, Indonesia, and India.
Malaysia, which is the chair of Asean this year, has recognised the importance of a coordinated Asean response in dealing with the US. It recently announced that it was seeking a summit with Washington to address the bloc’s concerns about the recent 25% tariffs on automobiles, semiconductors and pharmaceuticals.
Asean also realises the need to diversify its export dependence away from the US. It completed negotiations to upgrade its FTA with China last year. Asean is also looking beyond the region to countries such as Canada, with whom Asean is hoping to conclude an FTA by the end of this year.
Regional countries also realise the importance of more intraregional cooperation and integration. The region plans to upgrade the Asean Trade in Goods Agreement (ATIGA) to boost intraregional trade. Another approach is to promote cross-border trade through initiatives such as the Johor-Singapore Special Economic Zone (JS-SEZ). If the JS-SEZ begins to deliver real progress, it could expand to cover parts of Indonesia while also encouraging more cross-border cooperation elsewhere in the region.
There is, however, one major gap in the regional responses. Despite Malaysia’s effort to ensure greater coordination, in most cases, Asean countries are going their own individual ways. Years after the Asean Economic Community (AEC) officially came into being, the reality on the ground is that the AEC has not moved the needle much for companies operating in the region. Tariffs have come down but a plethora of non-tariff barriers limit intra-Asean trade. Much of what passes for intraregional trade is actually trade among the affiliates of foreign-invested companies in the region rather than indigenous demand in each country for its fellow Asean member’s goods or services.
A rough ride ahead
Headwinds to global trade and more disorderly geo-political relations are fundamentally bad for Southeast Asia. Asean’s responses can at best soften these blows. Thus, we must expect slower growth and more awkward relations with the big powers. Asean’s leaders need to look beyond parochial country-first instincts to take the next step of wider Asean cooperation so that there is strength in numbers as the region confronts its challenges.
Manu Bhaskaran is CEO of Centennial Asia Advisors
