Over the years, ASEAN has evolved into an important regional block that plays a crucial role in fostering economic growth and stability in Southeast Asia. The reciprocal duties imposed by the United States of America (US) will reduce exports of ASEAN to the US and thus they may see negative growth in their global exports. This piece studies how ASEAN can either diversify into new markets or deepen ties with existing ones to offset export losses to the US. 

US’s reciprocal tariff on ASEAN 

President Donald Trump imposed reciprocal tariffs on various goods from multiple countries, including ASEAN members and China as part of a broader strategy aimed at addressing trade imbalances. The US tariffs imposed on ASEAN countries in early April initially and later through separate letters are as follows:

• Cambodia: 49 per cent, revised to 36 per cent effective 1 August 2025
• Laos: 48 per cent, revised to 40 per cent effective 1 August 2025
• Vietnam: 46 per cent, revised to 20 per cent due to bilateral agreement
• Myanmar: 44 per cent, revised to 40 per cent effective 1 August 2025
• Thailand: 36 per cent, continues effective 1 August 2025
• Indonesia: 32 per cent, revised to 19 per cent due to bilateral agreement
• Malaysia: 24 per cent, revised to 25 per cent effective 1 August 2025
• Brunei: 24 per cent, revised to 25 per cent effective 1 August 2025
• Philippines: 17 per cent, revised to 20 per cent effective 1 August 2025
• Singapore: 10 per cent (baseline).

To understand how the current US 10 per cent tariff could impact ASEAN economies, a simulation was conducted by using a partial equilibrium trade tool, named the SMART model through the World Integrated Trade Solution (WITS) platform.

SMART Simulation of Trade Impact from 10% U.S. Tariff Increase (in USD millions)

Source: ESCAP calculation based on WITS SMART, accessed in July 2025

The table shows that China is the most affected economy, with a projected export loss of USD 53.36 billion. The higher tariffs will reduce China’s competitiveness and prompt global buyers to seek alternative suppliers, both reducing demand and redirecting trade flows. In contrast, all ASEAN countries appear to benefit from this shift, gaining market share as trade is diverted away from China. All ASEAN member countries gain purely through trade diversion rather than trade creation, indicating that while overall demand remains unchanged, supply sources are shifting. ASEAN’s ability to absorb trade diverted from China demonstrates the importance of flexible supply chains and open trade policies. 

Since ASEAN heavily relies on importing from China including the supply chains linked to Chinese manufacturing, their exports may face challenges due to increased costs associated with tariffs especially if their exports are levied duties for China. In response to these pressures, ASEAN must explore alternate markets beyond China. 

The way forward

ASEAN can adopt a multipronged approach to respond to US tariffs. These include:

1. Increasing intra-ASEAN trade: Strengthening intra-regional trade through harmonization of regulations and reduction of tariffs among member States will create a more robust internal market within ASEAN itself and prevent them from the external shock emanating from US’ additional tariff.  ASEAN should also liberalise more in services under their trade in services agreement.

2. Utilising collective bargaining power: A collective approach could enhance bargaining power in negotiations with external partners and promote intra-regional trade to reduce reliance on the US market. If ASEAN negotiates collectively with the US, it will have a better chance of securing a more favourable trade terms than through bilateral deals.  

3. Integrating with China: Given that both the US and China have imposed higher tariffs on each other (even with a 30 per cent duty on China after 90 days), this could be an opportunity to tap Chinese markets on sectors that will see the US being displaced from Chinese markets (most of ASEAN exports to China are under FTAs and duty-free, whereas China will charge additional 10 per cent duty to US exports).  ASEAN can capitalize on the shifting trade dynamics by promoting bilateral and regional economic partnerships with China. 

4. Market diversification: ASEAN should focus on countries with which it has FTAs and developed targeted strategies to increase export share in their markets. These include New Zealand, Australia, India, Republic of Korea, Japan, the EU, MERCOSUR and Central Asia.  To further diversify markets, ASEAN should actively pursue new FTAs with emerging economies outside traditional partners like the EU, Africa or Latin America. 

5. Focusing on the services trade: ASEAN should expand its services trade by negotiating additional commitments with dialogue partners (Australia, China, India, Japan, New Zealand and Republic of Korea) as this can open new markets for its service providers while also enhancing competitiveness. ASEAN can diversify its service markets by harmonizing regulatory frameworks across member states. 

6. Adopting digital policies for strengthening regional supply chains: To strengthen ASEAN’s resilience against the US reciprocal tariffs, ASEAN should enhance regional supply chain autonomy by investing in ASEAN-based production networks and industrial clusters to reduce dependency on China and the US, and increase value-added manufacturing within the region. 

With the US reciprocal tariffs imposed across the board to almost all countries with higher duties on China, some of the supply chain linkages of ASEAN members are likely to be disrupted. ASEAN will also see decline in exports to US, despite countries like Indonesia and Viet Nam having a bilateral trade agreement. Though the legality of US reciprocal duties is being questioned, the decision may take some time. ASEAN must formulate an alternate export strategy. In this regard, looking at other important markets, focusing on services trade by including in its FTAs, entering into FTAs with other major trading partners and discussing how to enhance intra-ASEAN trade are some of the options.