U.S. Tariffs Spark Major Realignment of ASEAN and China Trade Flows

Image: REUTERS/Bart Biesemans

U.S. tariffs imposed in early 2025 have triggered a strategic shift in trade across Southeast Asia. As protectionist policies escalate, ASEAN countries are recalibrating their global partnerships. China’s regional influence is rising as U.S. demand shrinks.

Tariff Shocks and Trade Redirection

First, the U.S. introduced broad-based tariffs—including a 10% baseline and targeted duties of up to 49% on ASEAN exports—to reduce its trade deficit and address China-linked supply chains.

Next, heavily affected economies include Vietnam (46%), Cambodia (49%), and Indonesia (32%), which will slash their cost competitiveness in U.S. markets.

Additionally, supply chain routes, once designed to shift production away from China, are now confronted with new hurdles. Tariff relief that Southeast Asia once offered is now severely eroded.

ASEAN’s Deepening Pivot Toward China

Moreover, China has accelerated closer economic ties with ASEAN nations. Trade with the bloc surged 18–20% in Q1 2025 versus a year earlier.

Additionally, China–ASEAN bilateral trade reached record levels—over USD 700 billion in 2023—with ASEAN becoming China’s largest goods partner.

Furthermore, Chinese investments are expanding across logistics, energy, and manufacturing in Vietnam, Malaysia, and Cambodia under the Belt and Road Initiative.

Supply Chain Realignment: China + ASEAN

On top of that, many companies are reevaluating the "China+1" model. Tariff uncertainty has made Southeast Asian relocation less advantageous; some exporters are reversing moves, returning investment to China.

Also, transshipment scrutiny has increased. U.S. regulators are investigating goods labeled as ASEAN-origin that mimic canceled Chinese exports. Vietnam and Malaysia are enhancing customs enforcement and origin verification to avoid accusations.

Winners, Losers, and Economic Risks

By contrast, countries less tied to U.S. markets—such as Singapore or the Philippines—remain relatively insulated. Tariff impact has been mild for them.

Conversely, Cambodia’s garment sector faces severe disruption. With over a million jobs tied to U.S. exports, factories are cutting hours, and workers are facing debt and uncertainty.

Also, Malaysia’s exports of electronics and semiconductors face heightened risk, despite partial tariff exemptions. The country is pivoting through industrial diversification and cautious diplomacy.

ASEAN’s Strategic Response

In response, ASEAN is pushing for regional coordination. Malaysia, as the 2025 chair, is convening a summit to forge a collective trade strategy and unified diplomatic messaging.

Also, RCEP and the ASEAN Economic Community are being prioritized to bolster intra-regional trade and cushion external shocks.

Likewise, diversification to other global markets—India, the EU, and Gulf states—is underway. Governments aim to reduce dependence on U.S. demand.

Economic Impact Projections

Indeed, trade diversion is at work. U.S. trade is shifting toward India and ASEAN, with flows of USD 38 billion to Vietnam alone projected by 2027.

At the same time, ESCAP simulations show gains for ASEAN countries purely through re-route of exports—rather than new demand creation.

However, analysts warn that tariff-driven growth is uneven and fragile. Smaller economies heavily reliant on U.S. exports face significant instability.

Political Balancing and Future Trade Role

Furthermore, ASEAN must navigate a precarious balancing act. Nations are wary of being drawn into U.S.–China rivalry. Alignment pressures strain economic autonomy.

Also, as Chinese companies invest across ASEAN, concerns about overdependence are deepening among regional policymakers.

Nevertheless, infrastructure investment from China—rail links, ports, economic zones—continues influencing trade patterns and regional connectivity.

Final Thoughts

What’s clear is that U.S. tariff policies intended to rein in Chinese influence have ironically accelerated ASEAN–China trade realignment. ASEAN countries, once positioned as “China+1” alternatives, are now entangled in broader realignment dynamics.

Trade diversion, infrastructure investment, and diplomatic engagement are reshaping the region’s economic geography. As a result, Southeast Asia’s market orientation is shifting—from America toward its eastern neighbor.