Roundtable on the Future of Global Trade

In June, ASEANFocus+ invited regional experts to share their insights on how the Trump 2.0 administration’s trade policies are reshaping trade and investments and impacting developments in sectors such as finance and technology.

What are the expected areas Southeast Asian countries can, and will, offer as concessions in trade negotiations with the US? Does the current de-escalation in retaliatory tariffs between the US and China after the trade talks in Geneva signal an improved negotiating climate for the region?

MENON: As of mid-June, less than a month before the 90-day pause ends, details on negotiations with any country, in Southeast Asia or elsewhere, are still sparse. There are reports that the US has prioritised negotiations with 20 countries, which include Vietnam, Malaysia, and Indonesia, from the region. Letters setting out unilateral tariff rates will apparently be sent out before the deadline of 9 July.

With nothing coming of the Malaysian proposal for an ASEAN-US Summit, others have been left to make unilateral offers.

The de-escalation in US-China tariffs and tensions following the Geneva meeting may be short-lived, however, as the US continues its aggressive unilateral actions, such as the recent doubling of steel tariffs.

It is difficult to assess the impact with so little information and so much uncertainty. What is clear is that the world will be worse off as a result, as will the US and other big players like China and the European Union (EU).

But there could be winners and losers in Southeast Asia, depending on where they eventually land. There is significant variation in the original “reciprocal tariffs”, and these relativities will matter not only in determining trade competitiveness but also in attracting foreign investment.

The Trump administration’s approach to trade deals tends to exploit vulnerabilities by setting tariffs based on dependence on the US market. As a result, which Southeast Asian countries will find it more difficult to handle the negotiations, and how would these intricacies be best navigated?

MENON: The formula used to set the inappropriately termed “reciprocal tariffs” is designed to exploit the dependence of a country on the US market by focusing on exports relative to imports. This creates unequal or coercive bargaining power. This is why the poorest countries in Southeast Asia have been hit with the highest tariffs: Cambodia (49 per cent), Laos (48 per cent), Vietnam (46 per cent), and Myanmar (44 per cent).

While these tariff rates reflect the export-import ratio with the US, the dollar sums involved are relatively small except for Vietnam, a country with the fourth-largest goods trade surplus of about US$120 billion in 2024. While all these countries are rightfully concerned about the impact of these tariffs, it is Vietnam that matters most to the US. Trump started blaming Vietnam’s non-tariff barriers (NTBs) for the large bilateral deficit during his first term and has continued with these claims during his second.

Vietnam has offered to remove tariffs and address various NTBs to reduce the Trump tariffs, as have others. If the reciprocal tariffs on Vietnam and others are reduced in response, the question remains as to whether they may be raised again if the bilateral surpluses do not narrow.

Even if US-China trade tensions ease, China is likely to remain under scrutiny by the Trump administration. Could Southeast Asia face a surge in Chinese export dumping as the US market becomes less accessible, and how should the region respond?

KISHORE: Since 2019, Southeast Asia’s imports from China have outpaced intra-regional imports. The trend is likely to strengthen, as China pivots away from the US and steps up efforts to find alternate markets. 

The policy path for managing the pressures, without aggravating trade tensions, is narrow. While cheap Chinese imports threaten to accelerate Southeast Asia’s deindustrialisation, they also reduce cost pressures for downstream industries and help contain final prices. Raising trade barriers, therefore, is not optimal. Courting more Chinese investments to develop local industry and limit imports seems the appropriate strategy but could cause problems with the US.

The solution lies in strengthening domestic manufacturing. Over the past decade, Southeast Asia’s labour productivity growth has averaged 2.8 per cent, less than half of China’s, while capital deepening has stalled.

To thrive in a world marked by increased Chinese competition and fully capitalise on its vast portfolio of free trade agreements, Southeast Asia must prioritise reforms to close the productivity gap with China and lift manufacturing competitiveness.

How do you think multinationals operating in Southeast Asia will navigate this challenging trade and investment landscape? Is US reshoring a viable option for firms now?

KISHORE: Ordinarily, multinationals in the region would have responded to the intensifying US-China trade war by doubling down on diversification of their China-centric supply chains.

But the Trump administration’s mercurial stance on tariffs and heightened policy uncertainty have made such decisions tougher. Talk of relocating to the US to avoid tariffs fails to account for labour shortages, a thin domestic supplier base, tariffs on upstream imports, and risks of retaliatory trade measures. As a result of these challenges, firms would not be able to onshore manufacturing at the fast pace Washington would much prefer, without encountering production bottlenecks and higher costs.

Still, memories of recent production disruptions due to the concentration of supply chains in China will likely keep firms on the de-risking path. They could continue re-configuring their vertical supply structures at a more measured pace, or switch to a “build-where-you-sell” strategy to separate the US and Asian supply chains.

Finally, as the US becomes an unpredictable trading partner, efforts to increase reach in third markets will likely intensify.

Has the US lost its footing in the tech war and its standing with Southeast Asia as a technological partner of choice?

CAPRI: US tech companies continue to dominate across virtually all major sectors, despite the chaos and uncertainties unleashed by the Trump 2.0 era.

American multinational companies have a vested interest in ensuring that fair and open trade rules and trustworthy relations remain between the US and its ASEAN trading partners.

As such, US multinationals will continue to effectively leverage the US political and legal system to hold the current US administration accountable and, when necessary, answerable to its laws and Constitution.

The bifurcation of technology supply chains will likely continue on the current trajectory. What are some risks of going this route?

CAPRI: Clearly, no country wants to have to choose sides in the US-China geopolitical rivalry.

When it comes to ASEAN member states (AMS), especially regarding strategic tech stacks involving data centres, the Cloud, computing, and artificial intelligence (AI), there may be little choice if Beijing and Washington press the issue.

A big factor will be whether Washington can continue to “weaponise” advanced semiconductor supply chains (particularly the critical equipment needed to make advanced semiconductors). This is crucial for the advancement of any other kind of leading-edge AI. 

This “AI-Semiconductor Nexus”, then, will determine how much agency a “middle country” like Singapore has in the future. If Washington maintains its chokehold, then a binary choice may be inevitable for affected ASEAN countries like Malaysia, Vietnam, and Singapore. Similarly, Beijing may weaponise its dominance of rare earths and critical mineral supply chains.

What initiatives must be taken by ASEAN member states and ASEAN as a whole to enhance intra-ASEAN trade and investments to mitigate downside risks emanating from trade tensions?

TIJAJA: Intra-ASEAN trade and investment can help mitigate the risks from US-China trade tensions. Regional supply chains provide complementarity and collective competitiveness, which boost resilience. During the aftermath of Covid-19, intra-ASEAN trade and investment were proven more resilient and recovered faster.

Trade and investment rules offer policy certainty but must be observed and updated for relevance. Dialogue mechanisms cultivate relationships, boosting trust, responsiveness, and security during disruption. Finally, regional stability and connectivity attract businesses and investors as supply chains restructure.

The upgraded ASEAN Trade in Goods Agreement should address persistent non-tariff measures and emerging issues around security-related restrictions, trade and decarbonisation, and unfair trade practices.

As global merchandise trade faces disruptions, service trade has remained resilient. ASEAN should advance the implementation of ASEAN Trade in Services Agreement and ASEAN Services Facilitation Framework and formulate an agenda on service competitiveness.

ASEAN should also focus on attracting quality and sustainable investment to seize the opportunities as global firms restructure their production networks.

Finally, ASEAN should conclude the Digital Economy Framework Agreement early to unlock the region’s digital potential.

What sectors do you think can benefit the most from greater ASEAN economic integration?

TIJAJA: Sectors that are more value-chain intensive, with complementarity among AMS in endowment and capacity, are at the forefront. Likewise, sectors exposed to greater security-related scrutiny and restrictions would also be good candidates, given the benefit of regional supply chain connectivity and resilience. Sectors in these categories may include electric vehicles, semiconductors, and broader electronic products.

ASEAN should also think long-term and consider sectors key to its broader agenda on green transition, digital transformation, innovation, human capital development, and economic resilience, including food, water, energy, and health security.

With these considerations as a basis, some areas may include AI and other new technologies, green and environmental technology, and power connectivity.

We should also include services given their importance to our economy and employment, such as digitally enabled business services and those services supportive of ASEAN’s broader transformation agenda, as well as tourism, given its significant local economy multipliers.

Will geopolitical tensions lead to a greater risk of financial fragmentation in global payment systems and foreign exchange (FX) reserves? What are the direct implications for Southeast Asia?

PONGSAPARN: Rising geopolitical tensions have led to a reconfiguration of trade and foreign direct investment (FDI), with a growing role for “friend-shoring” and connector countries. Consequently, there have been shifts in FDI patterns in the region, with the share of ASEAN in global FDI rising consistently.

Geopolitical tensions also raise concerns over the potential weaponisation of finance, evident in sanctions on Russia. Countries are exploring alternatives to Western-led payment infrastructure (such as SWIFT) and the US dollar (USD), leading to the emergence of alternative payment systems such as China’s Cross-border Interbank Payment System (CIPS) and diversification of FX reserves away from the USD, to increase their resilience to geopolitical fragmentation.

However, SWIFT and USD will remain dominant for the foreseeable future due to the absence of scalable alternatives, though their share is expected to decline gradually.

Over the past decade, ASEAN has promoted local currency settlement in trade and investment, and geopolitical pressures are likely to accelerate this push. Many ASEAN countries are actively diversifying FX reserves and initiating regional payment connectivity, where cross-border transactions can be settled in local currencies, contributing to local currency usage. 

Will the current developments in the trade policy space lead to a rise in the further development and adoption of Central Bank Digital Currencies (CBDCs)?

PONGSAPARN: As trade alliances shift from multilateralism towards friend-shoring and connector countries, cross-border payment connectivity among trading partners has become increasingly important. It enhances trade efficiency by streamlining settlements through direct connectivity, which helps lower foreign exchange conversion costs and reduces reliance on the US dollar and US dollar-based systems.

Various bilateral and regional payment linkages — such as those among ASEAN countries — are already operational, particularly at the retail level. Multilateral initiatives like Project Nexus are also progressing.

These efforts connect existing domestic FAST payment systems (FPS) and do not involve CBDCs. Meanwhile, countries are at varying stages of CBDC development, from research to pilots. Experimental cross-border CBDC projects, such as mBridge (China, Thailand, United Arab Emirates, and Hong Kong) and Project Dunbar (Singapore, Australia, South Africa, and Malaysia), are also underway.

That said, FPS-based and CBDC connectivity face technical and regulatory interoperability challenges and are therefore unlikely to fully replace existing global USD-based systems in the near future.

While trade fragmentation strengthens the case for cross-border payment connectivity, CBDCs may play a future role, but FPS-based connectivity already provides a practical path forward.

Countries worldwide have recently held national elections (Australia, Canada, Singapore, Philippines). To what extent would you attribute the election results to changes in the second Trump Administration’s policy trajectories?

MARRO: We’re seeing anti-incumbency sentiment play a large role in global elections, driven by dissatisfaction with housing unaffordability or the high cost of living.

However, we’re also seeing a “Trump effect” materialise – that is, political parties that associate themselves too closely with the US president risk being burned by voters. The elections in Canada and Australia illustrate this. The Australian Labor Party, in particular, smashed expectations that it would be forced into a minority government, partially because Australian voters were so turned off by the similarities in the “Trumpian” policies and attitude of the opposition candidate, Peter Dutton.

Of course, this is far from being a guiding rule and seems to be a dynamic limited to countries that share similar political, economic, and cultural profiles with the US. For most of Asia, dissatisfaction with the status quo will remain a dominant political theme, to the detriment of the existing incumbents.  

What strategies on a domestic level should regional governments employ to cushion against trade volatility? Is there a risk that more aggressive national responses could lead to beggar-thy-neighbour policies in the region?

MARRO: Most policymakers are now recognising the risks of putting all their eggs in one basket – whether that’s relying disproportionately on the US for security, for example, or on China for economic growth.

Over the remainder of this decade, we’ll see a sustained push around diversification, not just for trade but also diplomatic and geopolitical ties. Governments will try to capitalise on this non-alignment push while actively hedging against future risks. “Beggar-thy-neighbour” policies could be a tempting way to offset volatility, via more active currency management or aggressive policies that subsidise production to attract investment into local supply chains.

But these economically distortive policies could come at the expense of the wider region. Dialogue could be an avenue to prevent a vicious circle but avoiding it will depend on whether there is a fundamental will to put the interests of the many above the interests of the few.   

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Editor’s Note:
ASEANFocus+ articles are timely critical insight pieces published by the ASEAN Studies Centre.