Asia, explained.
The Petronas Twin Towers in Kuala Lumpur illuminated ahead of the Association of Southeast Asian Nations summit on 26 May 2025 in Malaysia (He Guowei/VCG via Getty Images)
As the deadline for suspension looms, regional economies are looking to patch the vulnerabilities of regional economic architecture.
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The tariff war that’s accelerating Asia’s trade transformationThe tariff war that’s accelerating Asia’s trade transformation
The US imposition of a universal 10% tariff on all imports, along with proposed additional duties of up to 50% for trade-surplus countries, triggered renewed urgency across the Indo-Pacific region to recalibrate economic policy. Although many tariffs were initially suspended for 90 days, the signalling effect was immediate, fuelling global market volatility and intensifying fears of prolonged economic disruption.
Many Indo-Pacific economies had already begun diversifying trade and reconfiguring supply chains during Trump’s first term. Strategies such as “China+1”, along with participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), reflect early efforts to reduce overdependence on any single partner. What distinguishes the current moment is its intensity. The 2025 tariffs have accelerated these trends and exposed the vulnerabilities of regional economic architecture.
China reacted assertively. It imposed retaliatory duties of up to 125% on selected US goods, launched a WTO complaint and tightened export controls on critical materials. American firms were added to a blacklist and regulatory scrutiny of US companies operating in China intensified. Although a truce in May reduced US tariffs on Chinese goods from 145% to 30% and China’s from 125% to 10%, Beijing framed the outcome as a validation of its firm negotiating posture.
Across the Indo-Pacific, the economic centre of gravity is tilting towards regional self-reliance.
Geoeconomically, China is repositioning. It has ramped up trade and investment with ASEAN and the Global South, using tariff relief and infrastructure pledges to consolidate influence. The conclusion of the ASEAN–China Free Trade Area 3.0 negotiations in May, an initiative launched in 2022, underscores its attempt to frame itself as a reliable economic partner in contrast to US volatility.
Japan and South Korea have borne significant but manageable costs. Japan faced an effective 24% tariff, while South Korea was hit with a 25% hike. Tokyo has refused partial deals that exclude key sectors like automobiles, while Seoul is pursuing a comprehensive arrangement after its June 2025 elections.
Both countries share a three-pronged approach: negotiating with Washington, cushioning domestic industries with relief packages and expanding engagement through ASEAN+3 and, in particular, trilateral talks with China which were resumed after a six year hiatus. South Korea has been redirecting supply chains, including major arms exports to Eastern Europe and the Middle East.
With a relatively moderate 26% tariff, New Delhi is pushing for a negotiated exemption by July. It has resumed bilateral trade talks with Washington, while promoting its “Make in India” and Production-Linked Incentive schemes to attract companies diversifying from China. Investments such as Foxconn’s expansion in Tamil Nadu reinforce this trend.
India’s April-May 2025 trade data suggest modest gains in sectors such as machinery and textiles, though the tariffs could still reduce overall US-bound exports. Concurrently, India continues to engage multilaterally, joining WTO statements against unilateral tariffs and participating in BRICS coordination. Its cautious diplomacy reflects a desire to maintain autonomy while reaping gains from the current turbulence.
US President Donald Trump with India's Narendra Modi at the White House in February (White House Photo)
Southeast Asia remains one of the most affected regions. With a US$227 billion surplus with the United States in 2024, ASEAN economies such as Vietnam, Cambodia and Laos faced tariff rates of up to 49%. Yet the bloc’s 10 April joint statement rejected retaliation, opting instead for dialogue and a reaffirmation of multilateralism. At the 46th ASEAN Summit last week, leaders reinforced this posture, proposing collective dialogue with Washington to avert further disruption while exploring strategies to enhance economic resilience, including diversifying trade partnerships and deepening regional integration.
Behind this unified message lie divergent national strategies. Thailand is narrowing its surplus via increased US energy imports. Malaysia is boosting semiconductor competitiveness. Vietnam is hedging – expanding ties with both the US and China, while Indonesia has pushed to join CPTPP and deepen Global South engagement.
In response to the shock, ASEAN has accelerated the implementation of RCEP and upgrades to the ASEAN Trade in Goods Agreement (ATIGA). As leading analysts note, RCEP is not a Chinese initiative, but an ASEAN-led platform intended to consolidate trade norms and counter fragmentation. With nearly 80 per cent of RCEP’s total trade occurring with external markets as of 2023, its members share a fundamental interest in defending multilateral trade norms. Despite underinvestment in its institutional capacity, RCEP remains the most viable vehicle for defending multilateralism in Asia.
The Indo-Pacific is not retreating from global trade, but it is hedging more assertively. RCEP’s consolidation of rules of origin and facilitation of trans-regional value chains gives member economies tools to build resilience. Yet the credibility of the United States as a trade partner has diminished, even among allies. The ASEAN+3 finance ministers’ joint statement in May, which included China, Japan and South Korea, expressed concern about growing protectionism and affirmed support for transparent, rule-based trade.
This moment may be remembered less for the tariffs themselves and more for how they accelerated a longer shift. Across the Indo-Pacific, the economic centre of gravity is tilting towards regional self-reliance, pragmatic pluralism and institutional recalibration. Whether the US can re-establish trust remains uncertain. But regional actors are no longer waiting to find out.
The views expressed in this article are the author’s own and do not reflect those of his workplace and affiliated institutions.
About the author
Vu Lam
Dr.
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