By Taraneh Sanat
Background
“Liberation Day”, announced by U.S. president Donald Trump on April 2nd, 2025, signalled an end to the United States’ participation in the liberal trade order and marked the most significant U.S. tariff hike since the 1930s. According to the Trump Administration, these extreme measures are necessary to correct the nation’s historical reliance on foreign imports and to combat the “lack of reciprocity” in America’s bilateral trade relationships. This drastic deviation from the free market was met with significant political backlash from amongst the president’s closest allies. Mitch McConnell, former Senate majority leader and long-time supporter of President Trump, broke rank with the Oval Office and denounced “Liberation Day” as “bad policy” that could lead to “trade wars with [US] partners and hurt working people most”.
Markets originally concurred, predicting imminent economic catastrophe as the prices of durable goods rose by over 3% at an annual rate in 2025. However, the global market has proved itself to be resilient. The OECD has raised its global growth forecast from 2.9 to 3.2%, demonstrating the durability of the global supply chain and the potential gaps in the tariff implementation plan proposed by President Trump. A prominent example of the complexities of this new trade order is the effect of Trump’s tariffs on the Southeast Asian economy. As one of the hardest hit regions of the new U.S. policy, its examination allows us to look into the potential future of trade relations and a hegemonic order shifting away from the West.
Emerging Shifts Southeast Asia
As home to some of the world’s most rapidly developing manufacturing economies, Southeast Asia has become a vital link in the global supply chain network. Prominent sectors range from semiconductors to textile production, which have historically been courted by American and Chinese markets both wishing to establish a presence in Southeast Asia’s strategic markets. The region’s smaller economies have benefitted from these diversification efforts and have allowed the region to maintain its position as a critical space for reciprocal investment.
After the announcement of the new tariff policy, Southeast Asian states have been subjected to a vast spectrum of tariff rate changes, ranging from the new universal baseline of 10% in Singapore to the reciprocal tariff rate of 40% in Laos and Myanmar. As a result, there has been an upheaval in the supply chain network, sending shock waves throughout manufacturers and leaving the region in a difficult limbo –– should they negotiate or retaliate?
In the past several months, it appears that negotiation has become the standard approach. Most notably, Vietnam has succeeded in negotiating a better deal, offering to purchase natural liquid and aircraft case from American manufacturers in return for a reciprocal tariff reduction. In an example of deft diplomacy, Hanoi succeeded in bringing the tariff rate down from 46 to 20%. A trade deal has also been reached with Indonesia, which eliminated 99% of tariff barriers for American exports, but succeeded in reducing the country’s tariff rate to 19%.
However, other nations have not been so lucky. There are credible concerns that these policies will decimate the economies of Asia’s poorest nations. For example, Laos, who is considered to be one of the least developed countries in the world, faces an uncertain economic fate. Its market relies on the US to purchase its low-value commodity productions and has been heavily disrupted by the massive tariff levied against it. Xaybandith Rasphone, vice president of the Lao national chamber of commerce, predicted that nearly 60,000 Lao employees could be impacted by the tariff increase. This would contribute to destabilizing the small nation’s garment and commodities sector, which provides a significant percentage of income for its citizens.
This is evocative of an emerging trend within Southeast Asia which may generate a divide between the “haves and have nots” in the global supply chain. Those able to secure a beneficial rate with the US will play a vital role in maintaining American hegemony across Asia, while those that suffer economically under US protectionist policies will likely gravitate towards China, boosting Beijing’s influence in geostrategic influence across the region. Shifts such as this show how Southeast Asia will play a vital role in the restructuring of the global order.
China: A Battle for Influence
Unlike nations in Southeast Asia, China has taken a retaliatory approach to the economic uncertainty of renewed American protectionism. Although tariff rates between the US and China have been reduced since the spring, Beijing was originally hit with a 145% tariff on all exports, which triggered a series of retaliatory tariffs and business restrictions on US companies. This move signalled that Beijing was not interested in placating US officials or markets –– a contrast from its southern neighbors. As an increasingly vital heavyweight in international trade and geopolitics, China’s response to shifting the global market can be viewed as a move to expand its regional influence across Southeast Asia.
Relations between regional actors and China have traditionally contained vast economic and political complexities, but in recent years the promise of increased trade and investment has driven the region to consider China as a formidable partner. As a result, US influence has slowly become diminished. From the perspective of regional actors, particularly within ASEAN, trade with Beijing provides the ideal opportunity for economic diversification. At a time of uncertainty with US-bound exports, this is more important than ever and is reflected in recent dealing between ASEAN members and China. In October, the bloc of Southeast Asian nations signed a deal upgrading their free trade agreement with China, reaffirming its commitment to the major trading partner.
Such a move is also highly beneficial for China, who is determined to capitalize off of Washington’s restrictions to accelerate trade relations and facilitate the expansion of China’s regional influence. This strategy appears to have found success. Despite China’s exports to America plummeting, its overall trade has remained steady due to boosting shipment values to Southeast Asia. Other states have taken China’s queue, banding with the regions’ small economies to create the Comprehensive Economic Partnership, which is exploring deeper integration within an alternative global trade order. Along with economic influence, this shift creates a critical strategic edge for China. Islands such as Laos or Timor Leste, who have both been hit with damaging tariffs, are economically weak but locationally powerful. Through increasing development aid loans rather than limiting exports, Beijing has assured itself as a regional middle power in a commercially and militarily advantageous location. While it has yet to surpass the influence of the US and its allies, Washington’s current tariff policies are accelerating the process which will diminish its own gains across the Southeast.
What Happens Next?
The Trump Administration, perhaps recognizing the risks of its new economic policies, has made efforts to shore up its position as a global leader and economic partner across Asia. President Trump’s tour of Asia in October resulted in trade pacts with many Southeast Asian nations, such as Malaysia, Thailand and Cambodia. Deals with ASEAN states to export more to the US seem to have skewed in the region’s favour by making them a valuable actor in the US-dominated global supply chain. However, this leaves many nations more vulnerable to further changes in tariff rates and continues the air of uncertainty that has plagued regional trade politics since “Liberation Day”.
It is likely that Southeast Asia will still be massively impacted by these new tariff policies, but that this will look different based on country-dependent factors. While nations like Vietnam, Singapore, and Malaysia are likely to retain some benefits, the economies of Laos, Timor Leste, and Myanmar are likely to face more challenges. This divide leaves a critical opening for China to expand its middle power influence amongst ASEAN states and the region’s smaller economies, which can also provide strategic locational benefits. Although these factors are subject to change, it is certain that US tariff policies have placed Southeast Asia center-stage at a vital moment for the global supply chain.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
Photo Credit: Linh Pham for The New York Times