Southeast Asia defies pessimists as openness proves key to trade resilience

Southeast Asia’s export-driven economies have proven far more resilient to global trade upheaval than widely assumed, with economic openness emerging as the foundation of their success, according to a new Lowy Institute Analysis.

The research paper, Navigating the storm: Southeast Asia and the global trade shocks by Roland Rajah, Ahmed Albayrak and Robert Walker, analyses how the region has navigated two simultaneous economic challenges: The United States’ punitive tariffs targeting ASEAN nations, imposed by President Donald Trump, and China’s surging exports, dubbed the “second China shock”.

The research challenges suggestions that Southeast Asia would be unable to cope with tariffs and “swamped” by cheap Chinese goods. Instead, its exports have boomed, and the region finds itself at the centre of international efforts to deepen rules-based trade.

“The region’s competitiveness and openness have been key to that resilience,” the authors argue. “Southeast Asia should double down on this — diversifying and deepening its partnerships, supporting rules-based trade, and undertaking complementary structural reforms at home to boost its own competitiveness and productivity.”

The paper acknowledges significant challenges, including stagnating exports to China, acute pain in some import-competing industries, and high uncertainty about the United States’ future trade policy. “Nonetheless,” argue the authors, “the lesson so far is that Southeast Asia is better positioned to navigate the current trade shocks than commonly assumed.”

KEY FINDINGS

• Southeast Asia’s export-orientated economies have so far proven highly resilient to the global trade shocks of punitive US tariffs and China’s surging exports.
   
• The region is capturing shifting global supply chains and leveraging growth-enhancing Chinese imports and capital inflows while nonetheless avoiding excessive dependence.
   
• Southeast Asia is under pressure but also proving it retains considerable capacity to navigate today’s trade and geoeconomic turbulence while continuing to prosper.

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