Trade Relations

In 2018, Southeast Asia benefited significantly from shifts in global trade dynamics resulting from the United States’ trade policies towards China. The region attracted manufacturers seeking to avoid U.S. tariffs on Chinese goods, leading to investment, technology transfers, and tax revenue growth under the “China Plus One” supply chain strategy.

Current Economic Challenges

As of 2025, Southeast Asia faces a new set of challenges due to ongoing trade tensions between the U.S. and China. The region is impacted by new U.S. tariffs, which threaten its export-driven economy, and an influx of Chinese goods seeking alternative markets. Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute, noted the region’s efforts to navigate these pressures without favoring either major economic power.

Trade Dynamics

China remains the largest trading partner for the Association of Southeast Asian Nations (ASEAN), while the U.S. ranks fourth but holds significant influence in regional security. The relationship with the U.S. has been strained since new tariffs were imposed earlier in 2025, affecting several ASEAN countries.

Tariff Adjustments

Initially, tariffs were imposed on Cambodia, Laos, Vietnam, Thailand, and the Philippines at rates ranging from 17% to 49%. Negotiations have since reduced these tariffs to between 10% and 20% for most ASEAN nations, though Myanmar and Laos continue to face high tariffs of 40%. Additional tariffs have been introduced on specific exports, including steel, aluminium, and auto parts.

Transshipment Concerns

A new tariff on transshipments aims to address goods shipped through the region to bypass existing tariffs on Chinese exports. This measure has raised concerns about the impact on the “China Plus One” production model, according to Nick Marro, a lead analyst at the Economist Intelligence Unit.

Economic Outlook

In light of these developments, the Asian Development Bank adjusted its growth forecast for Southeast Asia in 2025 from 4.7% to 4.3%, citing a new global trade environment shaped by tariffs and updated agreements. Chinese exports to the region have increased, with a 12% rise to $586 billion in 2024. This upward trend is expected to continue, with a 14.7% increase in the first nine months of 2025.

Shifts in Trade Patterns

Conversely, Chinese exports to the U.S. have declined, with a 16.9% drop over the same period. Experts suggest that some Chinese manufacturers are redirecting exports through Southeast Asia, reflected in a 13.3% increase in ASEAN’s exports to the U.S. in 2024.

Regional Implications

The influx of Chinese goods has prompted concerns within local industries. Competitive pricing, driven by currency depreciation and overproduction, has raised fears of market disruption. Some industries in Vietnam, Thailand, and Indonesia have reported instances of “dumping,” or undercutting local prices.

Strategic Considerations

Southeast Asia’s approach to managing these trade challenges involves negotiating individually with major trading partners rather than as a unified bloc. This strategy, however, may have long-term implications, as regional stability and economic dynamics continue to evolve.

While Southeast Asia seeks to balance relationships with both the U.S. and China, ongoing negotiations and potential tariff changes remain critical factors in shaping the region’s economic future.