The economic landscape of Southeast Asia is undergoing a profound transformation as new U.S. tariff policies disrupt long-standing trade dynamics. In 2025, the United States introduced sweeping reciprocal tariffs targeting several ASEAN nations, with initial rates reaching as high as 49 percent for Cambodia and 46 percent for Vietnam. These measures have triggered widespread concern across the region, challenging an economic model built on low-cost manufacturing and access to American consumers. Countries such as Thailand, Indonesia, and Vietnam, which have historically relied on export-driven growth fueled by foreign investment, now face factory shutdowns, canceled orders, and shrinking inflows of capital. The abrupt policy shift comes at a time when ASEAN exports to the U.S. hit a record $477 billion, making the impact particularly severe.\n\nWith a combined GDP approaching $4 trillion in 2024, ASEAN ranks as the world’s fifth-largest economic bloc. Its success has been rooted in openness to global markets, strategic adoption of logistics innovations like containerization, and strong integration into international supply chains. However, the current U.S. stance—framed around reindustrialization and reducing dependency on offshore production—threatens to dismantle this framework. Unlike previous trade tensions that primarily targeted China, the 2025 tariff regime directly implicates Southeast Asian economies, suggesting a broader recalibration of American trade policy.\n\nIn early August, Washington revised its approach, lowering base tariffs for several countries after bilateral negotiations. Vietnam and Malaysia saw their rates adjusted to 20 percent and 19 percent respectively, while Indonesia, Thailand, and Cambodia secured a 19 percent rate. Brunei faced a 25 percent duty, and Myanmar and Laos were hit with 40 percent, among the highest globally. The Philippines experienced a slight increase from 17 to 19 percent. Singapore maintained its favorable 10 percent rate. While these adjustments were welcomed, analysts caution that the structural risks remain. Forecasts initially projected a 2.5 percent contraction in ASEAN’s GDP post-tariff announcement, but expectations have since improved. Still, research warns that a broader global turn toward protectionism could raise average tariffs by 15 percent, potentially shrinking regional output by 11 percent and cutting employment by up to 25 percent.\n\nGeopolitical considerations further complicate the situation. The U.S. is considering a 10 percent tariff on BRICS members and partners over perceived anti-American policies, affecting Indonesia—a full member since 2025—and partner states like Vietnam, Thailand, and Malaysia. Additionally, Washington is cracking down on transshipment practices, where goods from China are routed through third countries to avoid duties. Vietnam, which imported $144 billion in goods from China and exported $136 billion to the U.S. in 2024, is under particular scrutiny. Its trade deal with the U.S. includes a potential 40 percent penalty on transshipped goods, possibly setting a precedent for future agreements.\n\nASEAN’s dual role—as both a manufacturing alternative to China for U.S. firms and a deep trading partner with Beijing—has created a delicate balancing act. Chinese imports now account for nearly 25 percent of ASEAN’s total, up from 16 percent a decade ago, while U.S. firms contributed about one-third of foreign direct investment in 2024. This interdependence makes decoupling difficult. The so-called “China+1” strategy, which drove investment into Southeast Asia during earlier trade conflicts, may no longer offer an escape route under the current tariff regime.\n\nLooking ahead, ASEAN must confront the possibility that its export-led growth model may no longer be viable in an era of economic nationalism. Without accelerating regional integration, diversifying export markets, and upgrading industrial capabilities, the bloc risks economic fragmentation. The coming years will test whether Southeast Asian economies can adapt to a new global order defined by tighter trade controls and strategic competition.\n— news from GIS Reports\n\n— News Original —\nASEAN economy under threat after Trump tariffs – GIS Reports\nSoutheast Asia’s economic model at risk due to U.S. tariffs n nThe region’s vibrant and globally connected economy is being pressured to overhaul its integration within global supply chains. n nThe 2025 United States tariff regime features several aggressive reciprocal tariffs on Southeast Asian economies, with some reaching up to 40 percent. The measures have triggered deep anxiety across regional economies, presenting the region with its most significant economic challenge in decades. n nNations like Cambodia, Vietnam, Thailand and Indonesia, which built their economic growth models on low-cost manufacturing and open access to Western markets, particularly the U.S., are now facing unprecedented disruption. While Southeast Asia has weathered previous trade wars through adaptation, the scale and intensity of President Donald Trump’s tariffs threaten to force structural changes beyond mere supply chain adjustments. n nAs these economies reel from the immediate consequences such as canceled export orders, factory closures and inward investment contraction, a critical question looms over the region: What are the long-term implications for Southeast Asia’s export-led economic architecture? n nThe Southeast Asian economic model n nFew other regions of the world have become as reliant on economic globalization and free trade as Southeast Asia. Indeed, many Global Majority states, such as India and those in South Asia, Africa and Latin America, have sought to emulate the foreign direct investment (FDI)-driven and efficient manufacturing export model of the economies of the Association of Southeast Asian Nations (ASEAN). n nSoutheast Asia’s economy, with a combined gross domestic product (GDP) just shy of $4 trillion in 2024, is collectively the world’s fifth largest. The region’s growth was built on sweeping economic reforms that embedded openness to foreign investment and free trade. These countries strategically adopted rapid changes in information and communications, while also absorbing advances such as containerization to support exports. n nConcurrently, the region secured broad access to the giant U.S. market – a trade relationship that represented the largest share of its end-user exports – even as China emerged as its primary trade partner over the past decade. More than 80 percent of ASEAN’s exports to the U.S. are in the form of goods. This state of affairs has suddenly become a crisis for the region, now that President Trump has raised the prospect of “re-industrialization” and the reshoring of manufacturing. n nThe tumultuous change in U.S. policy came at a time when ASEAN’s exports to the U.S. had reached a record high, with $477 billion worth of goods last year. As a result, Mr. Trump’s “Liberation Day” tariffs hit Southeast Asian economies especially hard. The April announcement of import duties as high as 49 percent on Cambodia, 46 percent on Vietnam and 32 percent on Indonesia, were equivalent to or even exceeded those even initially placed on China. n nThe impact of the reciprocal tariffs resulted in short-term dislocation for businesses utilizing ASEAN as a low-cost, efficient export platform to the U.S. The longer-term effects of the tariffs are becoming apparent, prospectively marking the death knell of the region’s economic model. n nMany Southeast Asian governments believe they are being unfairly punished by the Trump administration for having welcomed the extensive shifts of production from China into their economies, as multinationals sought to escape Washington’s intensifying trade tensions with Beijing. n nNew tariff rates provide limited relief, but the damage is done n nOn August 1, the Trump administration issued revised, lower tariff rates for Southeast Asian economies. Countries that had agreed deals with Washington include Vietnam and Malaysia, and saw their basic tariff rates reduced to 20 and 19 percent, respectively, while Indonesia, Thailand and Cambodia also secured deals at 19 percent. All were lower than the April tariff levels. n nOnly the Philippines later received a higher rate of 19 percent, relative to its initial 17 percent duty, while Brunei was subject to 25 percent. Washington hit Myanmar and Laos with a 40 percent tariff, among the highest reciprocal tariffs worldwide, albeit less than what was previously announced. Only Singapore benefited from the 10 percent baseline on Liberation Day, which was maintained. n nThe reduction in tariffs has been considered by the region’s governments as a welcome relief and even portrayed as a kind of win relative to what existed beforehand. It was also seen as a success when compared with competing economies, such as India and Brazil, which have been subject to 25 percent and 50 percent rates, respectively. n nSeveral other Global Majority economies in Africa and Latin America have also been subject to higher tariffs than those imposed on Southeast Asia at the beginning of August. n nEconomic forecasts initially predicted a sharp 2.5 percent drop in ASEAN’s GDP in the aftermath of Liberation Day. Following the August adjustment, however, most analysts revised their outlook to reflect less negative impacts. n nEven so, several research institutes warn that a global contagion of protectionism could push average worldwide tariffs up by 15 percent, posing a clear threat to Southeast Asia’s long-term economic growth. Such an event could lead to an 11 percent decline in the region’s economic output and hit employment by as much as 25 percent, leading to potential political instability. n nSeparately, complexities relating to other tariffs on certain Southeast Asian economies revolve around various geopolitical factors. These include the U.S. potentially imposing a 10 percent tariff on BRICS nations for their “anti-American policies.” This measure would affect Indonesia, which became a full member of the grouping at the beginning of this year, in addition to Vietnam, Thailand and Malaysia, given their status as BRICS partner states. n nAmid the haze of tariffs and levies announced almost daily to serve President Trump’s geopolitical aims, one certainty remains: U.S. tariffs are here to stay. Once such policies are in place, the political will to remove them will be minimal to non-existent. This was the case after the imposition of President Trump’s tariffs on China during his first administration. Notably, his successor and Democrat rival, President Joe Biden, never removed them. n nThis time around, there will be no prospect of evading tariffs by employing measures such as the “China+1” strategy. That approach saw both Chinese-owned and international businesses with operations in China establish production in alternative low-cost jurisdictions – especially in Southeast Asia – to avoid the tariffs imposed on Beijing from 2018 to 2020 and the broader trade tensions that followed. n nTamping down on tariff circumvention n nRegarding the operation of trade deals with the U.S., ASEAN’s most significant challenge will be balancing its economic ties between the U.S. and China. n nThe region, generally, acts as a connector between the American and the Chinese economies. This was particularly pronounced after the first Trump administration triggered deployment of the China+1 strategy. To circumvent American tariffs on Chinese exports into the U.S., significant investment flows were redirected away from China and channeled into Vietnam, Cambodia, Malaysia and Indonesia. n nSoutheast Asian economies have otherwise developed deep trade and investment ties with China, built mainly on regional trade agreements. As a result, China has become ASEAN’s largest and fastest expanding source of imports, comprising almost a quarter of the region’s total last year, up from only 16 percent a decade ago. Growing imports suggest that ASEAN’s economy is becoming more intertwined with China. n nAt the same time, the proportion of FDI by U.S. companies has risen substantially since 2019, making up as much as one-third of inward direct investments into the region in 2024. n nWith U.S. investors setting up specialized manufacturing hubs in industries such as electronics across the region, they have moved into areas previously dominated by Chinese and Japanese investors. This suggests that ASEAN has also played a major role in the application of the China+1 strategy by U.S. multinational corporations. n nAs Southeast Asia absorbed this scaled-up relocation of supply chains from both U.S. and Chinese manufacturers, President Trump dismissed the region’s exports as little more than Chinese goods concealed and routed through third countries. While Washington has yet to fully disclose its rules on what it calls “transshipment,” President Trump has warned that cross-border transactions originating in China with little or no value added, aimed at evading duties, will face countermeasures. n nSo far, the trade deal between the U.S. and Vietnam is the only one to include a specific penalty tariff of 40 percent on transshipped imports into the U.S., potentially added to the base rate of 20 percent, though the exact details are yet to be finalized. n nGiven Vietnam was the first Southeast Asian country to negotiate with the U.S., and the first of three globally to strike a deal, the introduction of a 40 percent circumvention rate may become the benchmark for the region and beyond. Its application to Vietnam was likely due to the country acting as the principal global conduit for transshipments out of China. In 2024, Vietnam imported $144 billion worth of goods from China and exported $136 billion worth of goods to the U.S. n nMore by trade and sanctions expert Bob Savic n nThe EU’s moderate reindustrialization strategy n nUK aligns with U.S. in security-driven global trade shift n nThe new geopolitics of minerals n nIn light of this virtual matching of trade flows, Vietnam also has one of the world’s largest trade surpluses with the U.S., worth more than $120 billion last year. It has often been singled out as a hub for the rerouting of Chinese goods to the U.S., a phenomenon which prompted President Trump’s trade advisor, Peter Navarro, to refer to Vietnam as “essentially a colony of Communist China.” n nCompared to the 2018-2020 trade war, which primarily targeted China while allowing Southeast Asia to benefit from redirected investment, the 2025 U.S. tariff regime may deliver broader and more structural damage. The transshipment requirements likely to be incorporated into each U.S. trade deal leaves little room for the export substitution strategies that worked previously. Without urgent efforts to diversify markets, accelerate regional integration and upgrade industrial capabilities, Southeast Asia faces the prospect of economic fragmentation. n nThe coming years may force ASEAN to confront an uncomfortable truth: The export-led growth model that served it so well in an era of globalization may become untenable in a coming age of economic nationalism.