New tariffs under the Trump administration are shaking up the rules-based world economy as we know it. To ride out the storm, regional cooperation is key for ASEAN.

Trump’s second presidential term is here. His “America First” trade policy involves doubling down on tariffs and major tax cuts that could shake up the global economy. What should investors watch out for?

With its on-again, off-again tariff policy, the United States has sent markets reeling, marking the transition to an unfamiliar global trade order that disregards pre-existing agreements and World Trade Organization norms.

The world’s largest economy looks to be pivoting from multilateral free trade to mercantilism, which seeks to maximise its exports and minimise its imports. This has profound – if not existential – implications for ASEAN, whose economies have been able to flourish thanks to free trade.

The immediate impact on ASEAN

President Donald Trump’s actions have, by his own admission, been “somewhat explosive”. As Singapore Prime Minister Lawrence Wong explained, this new wave of protectionism is unpredictable and unstable and will bring a more volatile era.

The US had a US$227.7 billion trade deficit in 2024 with ASEAN and is its second-largest trading partner. With the introduction of tariffs, which are meant to offset such deficits, demand for ASEAN’s goods and services is likely to fall, especially in outward-oriented sectors. These include automobiles, consumer electronics, and textiles. A decline in wage increases is expected to follow.

Inevitably, ASEAN will also be caught in the crossfire of the ongoing trade war between the US and China. Concerns are mounting over the volume of low-cost Chinese exports – originally meant for the US – into Southeast Asia, which may stifle local manufacturers. Adding woe to misery, Chinese manufacturers have announced plant closures across the region. These twin pressures will likely lead to an uptick in short-term unemployment.

All told, economic growth in ASEAN – and the world – is likely to be curtailed. Singapore’s Ministry of Trade and Industry downgraded its 2025 GDP growth forecast from a range of 1 to 3 per cent to 0 to 2 per cent, while Maybank economist Chua Hak Bin maintained the country’s GDP growth forecast at 2.1 per cent. Meanwhile, the International Monetary Fund revised its global growth forecasts from 3.3 to 2.8 per cent.

On the other hand, inflation has stabilised. Recession in the ASEAN-6, comprising Indonesia, Malaysia, Singapore, Thailand, the Philippines, and Vietnam, is also unlikely. This, say analysts, is due to the fact that these economies are also driven by exports to other regions and by domestic demand. Maybank Research also does not anticipate a recession for the year, but expects that the increase in downside risks to growth will lead to short-term market volatility.

In the meantime, ASEAN’s immediate options are limited. Some countries may have countered with retaliatory tariffs, but such a response could backfire on ASEAN by further weakening confidence in global trade and driving down business investment. Moreover, ASEAN exports much more to the US than it imports, so the impact of any retaliatory tariffs would be marginal.

The White House has also suggested that non-retaliatory countries stand to ink more favourable trade deals with the US. Despite his mercurial nature, President Trump has generally expressed a willingness to engage in dialogue, leading ASEAN countries such as Malaysia and Vietnam to seek negotiations with Washington.

Longer-term trajectory

ASEAN has reaffirmed its commitment to open collaboration and communication, in line with its current chair and Malaysian PM Anwar Ibrahim’s call for member nations to put on a “united regional front”. ASEAN’s ever-growing internal market currently contributes to a fifth of its total regional trade of US$3.5 trillion.

Several forms of inter-regional cooperation may also be viable. Besides sending individual delegations to the White House, ASEAN members can negotiate deals with the US as part of a trade bloc. Examples include the ASEAN-fronted Regional Comprehensive Economic Partnership  or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership , which several ASEAN members have joined.

The US may be one of the biggest players in town, but it is not the only one. ASEAN can consider further diversifying its supply chains and export markets. This pivot away from the US is already underway, as seen, for instance, in Indonesia’s free trade agreement (FTA) talks with the Eurasian Economic Union or those between Malaysia and the European Union. The FTA inked between Singapore and Mercosur, a South American trade bloc, will deepen economic integration between Singapore and Argentina, Brazil, Paraguay, and Uruguay – the first such agreement between Mercosur and a Southeast Asian country.

Meanwhile, the proposed ASEAN-China Free Trade Area will enhance supply chain connectivity, competition and consumer protection, as well as economic and technical cooperation.

ASEAN members should also prioritise better integration with the local ecosystems of their trading partners to establish trust and greater cooperation. The World Economic Forum, for instance, recommends replacing centralised control models with joint ventures, licensing agreements, and autonomous subsidiaries.

How the primary actors – especially the US and China – act will greatly shape the final outcome of the global trade chaos. In May 2025, President Trump called for a “total reset” to reduce tit-for-tat tariffs for 90 days.. But it remains to be seen if and when he will follow through – Washington will likely be holding out for significant concessions from Beijing. Chinese President Xi Jinping, on the other hand, is mooting the vision of an “Asian family” while dissuading other countries from making trade deals with the US at its expense. In any case, ASEAN as a cohesive group will act to secure the best interests of its members and about 700 million people in the region.

Stronger together

Recent events show that ASEAN remains not just relevant but also resilient. From the 1997 Asian Financial Crisis to the 2008 Great Recession, ASEAN has weathered its fair share of storms. Though economic uncertainties prevail, ASEAN members have reason to be optimistic. The key is to stay united and remain committed to bolstering intra-regional trade and cooperation.

 

the bottom line:

Fortify your retirement planning during uncertain times to stay financially secure through any storm.

recommended reads

Share the article