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The reciprocal tariffs announced by U.S. President Donald Trump on April 2 – what he referred to as “Liberation Day” – hit Southeast Asian economies particularly hard. While they and others received a brief respite in the form of a 90-day pause, with a universal lowered reciprocal tariff of 10 per cent, tariffs on goods from China spiked to 145 per cent. The increasingly inconsistent and erratic policymaking from the Trump administration will ultimately push Southeast Asia away from making deals with the U.S., an increasingly unreliable trade partner.
Given the questionable economic basis of Trump’s original tariff calculations, the relatively high tariffs initially imposed on the region can best be explained through political reasoning. The tariffs – which ranged from 49 per cent for Cambodia, 48 per cent for Laos, 46 per cent for Vietnam, 44 per cent for Myanmar, 36 for Thailand, and 24 per cent for Malaysia and Brunei – were most likely intended to pressure these developing countries to seriously reconsider their close economic ties with China.
However, Trump’s punitive tariff strategy may have the opposite effect as Southeast Asia disengages from the U.S. to be pushed into the welcoming arms of China. Already, China’s President Xi Jinping is making a much-publicized visit to Malaysia, Cambodia, and Vietnam from April 14-18, which will invariably result in high-level bilateral trade and economic commitments that will strengthen these countries’ relationships with China. This ‘charm offensive’ is a highly strategic move by President Xi, given Malaysia’s chairmanship of the Association of Southeast Asian Nations (ASEAN) this year, especially with ASEAN members Cambodia and Vietnam among the hardest-hit countries on Trump’s original (April 2) reciprocal tariffs list.
Before April 2, most Southeast Asian countries were unwilling to take a clear side in the U.S.-China trade war. That said, the State of Southeast Asia 2025 Survey, recently conducted by the ISEAS-Yusof Ishak Institute, revealed that the U.S. was preferred over China should the region be forced to align with one or the other. Events of the past weeks, however, may alter this sentiment – particularly since the previous year’s survey saw respondents preferring China over the U.S., indicating Southeast Asian economies will readily switch allegiances in their own strategic best interests.
That the U.S. is willing to force this decoupling is surprising given that it needs Southeast Asian allies in the region, particularly in the context of escalating disputes in the South China Sea, where China lays claim to territorial waters that are also claimed by Malaysia, the Philippines, and Vietnam. Even the Philippines, the U.S.’s longtime ally in the region, was slapped with a 17 per cent tariff.
Semiconductor-exporting countries in Southeast Asia breathed a sigh of relief when they saw that semiconductors were among the exemptions listed by Trump on April 11, with some pullback by the president just days later. Malaysia accounts for approximately 20 per cent of the U.S.’s semiconductor imports, while Vietnam accounts for more than 10 per cent of semiconductor chips imported by the U.S. As the White House continues to vacillate on this exemption, ultimately, it may not last. While some goods such as copper, pharmaceuticals, semiconductors, and lumber articles are not currently subject to the reciprocal tariffs announced on April 2, they may be subject to future tariffs under Section 232 of the 1962 US Trade Act.
These tariffs on semiconductors should not be surprising, as this sector represents precisely the type of manufacturing industry Trump envisions reshoring to the U.S. Trump himself had previously shared intentions of placing tariffs as high as 25 per cent on semiconductor imports. Further, not all semiconductors are exempt at present, such as graphics processing units (GPUs) and servers for training artificial intelligence models.
If Trump’s broader tariffs on Southeast Asia are followed through on, the implications will be severe and long-lasting. ASEAN countries combined accounted for 7.2 per cent of global Gross Domestic Product (GDP) in 2024 and 8.7 per cent of global GDP growth over the past decade (2014-2024). If an economic recession were to hit Southeast Asia, those with the lowest GDP per capita, such as Myanmar, Laos, and Cambodia, would be especially hard hit. Myanmar, which has been embroiled in a civil war since 2021 and was recently hit by a devastating earthquake with a death toll of more than 3,500, will be left in shambles.
There are already anecdotes of Chinese investors based both in Mainland China and Vietnam looking to diversify their manufacturing bases elsewhere in the region. Malaysia and the Philippines, which are facing relatively lower tariff rates, may stand to gain, but at the expense of their neighbours. Meanwhile, individual Southeast Asian countries may be increasingly tempted to impose trade barriers on Chinese goods to protect their domestic industries, as exports that would otherwise have been destined for the U.S. are redirected to Southeast Asian markets. This move, however, could be economically self-defeating given the region’s tightly interlinked supply chains and shared reliance on Chinese inputs. It would also run counter to the principle of ASEAN centrality and economic integration.
Ultimately, Southeast Asia may not be able to break ties completely with the U.S. American foreign direct investment (FDI) into ASEAN represented 32.4 per cent of the region’s total FDI inflows in 2023. As a result, all Southeast Asian countries have prioritized diplomacy, sent negotiation teams, and committed to working closely with Washington.
Malaysia, as ASEAN Chair in 2025, is leading a unified regional response to the April 2 tariff announcement. At a Special ASEAN Economic Ministers’ Meeting on April 10, ASEAN articulated a common position to engage in a “frank and constructive dialogue with the U.S. to address trade-related concerns” and not impose any retaliatory measures in response.
This position, however, may just be about safeguarding economic interests and diplomatic relations with the U.S. in the current moment while the bloc simultaneously works out alternative long-term measures. Those measures may include upgrading the ASEAN Trade in Goods Agreement (ATIGA), finalizing negotiations on the ASEAN Digital Economy Framework Agreement (DEFA), and, importantly, upgrading the ASEAN-China Free Trade Agreement (ACFTA) and ASEAN-India Trade in Goods Agreement (AITIGA), as recently suggested by Malaysia’s Minister of Investment, Trade and Industry.
Moving in on these measures would indicate that Southeast Asia is indeed seeking deeper economic co-operation with China in the immediate future. The Regional Comprehensive Economic Partnership (RCEP), the free trade agreement that brings together China and the 10 ASEAN member states, as well as Japan, South Korea, Australia, and New Zealand, will also be an increasingly attractive instrument to solidify partnerships within the Asia Pacific region.
Amid this confusion and the flip-flopping of policies from the Oval Office, there is a unique opportunity for Canada to be the reliable and stable trading partner that Southeast Asian economies seek. Canada’s 2022 Indo-Pacific Strategy can be strengthened and updated to reflect current circumstances. A statement issued by the ASEAN Economic Ministers on April 10 drew parallels with that strategy and reaffirmed ASEAN’s support for a “predictable, transparent, free, fair, inclusive, sustainable and rules-based multilateral trading system”.
Canada, along with other regional bodies such as the European Union, should now brandish its credentials as a stable and reliable global player that adheres to these rules-based norms, helping to shore up the certainty that Southeast Asia currently needs. The institutions the U.S. was once part of creating but is now dismantling should continue to be upheld. While the existing free trade system may have weaknesses, a complete dismantlement of the global order at this speed – predicated on economic protectionism alone – cannot be absorbed by the majority of the world’s economies, least of all those in Southeast Asia. Canada’s participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which brings together 12 member countries, including Singapore, Malaysia, Brunei and Vietnam, also gives it an advantage the U.S. does not have.
Trump’s tariff policies are pushing Southeast Asia further away from the U.S. at a time when Washington needs regional allies in both economic and security matters. The long time lag for reshoring manufacturing to the U.S. will mean that in the near term, America will still require goods that are critical for its supply chains; even cars made in the U.S. will need auto parts from the rest of the world. Even if Southeast Asian countries would prefer a more balanced and diversified trade relationship that still includes the U.S., the region’s short-term strategic adjustments to shift its focus to China might become a long-term, permanent shift if current U.S. policies and tariff regimes endure. Will the U.S. recognize that there are severe long-term consequences of its recent actions in time to mend already fractured relations, or will it cede economic leadership in the region for good in its own misguided self-interest?
