Can ASEAN Navigate Economic Risk Amid Great Power Rivalry? 

The Association of Southeast Asian Nations (ASEAN) is facing rising pressure from the global  economy. Tensions between the United States and China are bringing real consequences. New  US tariffs reaching up to 49% on Cambodian goods are hurting Southeast Asia’s exports.  Electronics and textile shipments are among the most affected. At the same time, China is  expanding its presence across the Global South. This includes backing new industrial zones in  Laos and Myanmar. As a result, factories in Indonesia and Thailand are starting to close, job  losses are growing in several parts of the region.

This situation forces ASEAN to reconsider its economic direction. It can no longer rely on past  strategies alone. Global shifts are now shaping local outcomes. The region needs stronger  internal tools to remain resilient. Growth is already slowing down. The World Bank predicts  that the East Asia and Pacific region will grow at 4.0 percent in 2025. That’s a full percentage  point lower than the previous year. Within ASEAN conditions are vary, Indonesia is expected  to grow by 4.7 percent. That number is supported by household spending and investment. The  Philippines is doing better, with a 5.3 percent forecast. Malaysia’s economy is expected to grow  by 3.9 percent, but Thailand is struggling with growth projected at just 1.6 percent. Domestic  demand and export performance remain weak.

Foreign investment into ASEAN is still strong. In 2023, the region attracted a record $230  billion. This made-up 17 percent of all global inflows. Most of that money used to go into low cost production. Now, more is going into technology and research. Even so, risks are  increasing. Asia’s collective growth will decline to 3.9 percent in 2025, warns the International  Monetary Fund. Uncertain trade policy and weak global demand are two of the issues. ASEAN  economies which rely heavily on export-oriented are disproportionately exposed.

The US-China rivalry is making these vulnerabilities worse. Vietnam and Cambodia are  already seeing fewer export orders. Tariffs are hitting major supply chains. Meanwhile, China  is using its “dual circulation” strategy to shift production closer to its political allies. Chinese backed factories in Laos and Myanmar are competing directly with those in Thailand and  Indonesia. This trend is pushing ASEAN into a corner. If the region leans too far toward China,  it risks long-term dependence. If it moves closer to the US, it could face short-term penalties.

This pressure is exposing limits in ASEAN’s approach. The bloc has long avoided taking sides.  Its strategy has been to hedge and remain flexible. But that balancing act is becoming harder  to maintain. Internal challenges are also slowing ASEAN down. The consensus model makes  it hard to respond quickly. Every member must agree before action can be taken. This system  was meant to preserve unity. But in practice, it often delays decisions. Issues like Myanmar,  the South China Sea, and digital standards are all stuck. The same pattern affects economic  decisions. Some members are signing bold trade deals. Singapore and Vietnam, for example,  are pushing ahead with digital and investment agreements. Others remain cautious due to  domestic politics. ASEAN, as a group, struggles to speak with one voice.

There is also a problem of follow-through, ASEAN lacks enforcement tools. It cannot compel  members to meet shared commitments. This weakens regional efforts to build strong  frameworks. Digital rules, climate goals, and cross-border finance are difficult to implement  without accountability.

Despite these problems, ASEAN is trying to adapt. One major step has been the  implementation of the Regional Comprehensive Economic Partnership. RCEP is now the  world’s largest trade agreement. Since 2022, trade within RCEP has grown by about 5 percent  each year. Countries like Malaysia and Vietnam are using it to find new markets and improve  supply chain security. Still, RCEP has limits. It does not offer strong enforcement mechanisms.  Members must rely on trust and dialogue, which may not be enough in times of crisis.

Financial arrangements are also evolving. The Bank of Thailand renewed a currency swap deal  with China in 2024. This helps reduce exposure to the US dollar. Other countries may follow  this path. ASEAN is also negotiating a new investment agreement with the European Union.  That deal could bring more Western capital into infrastructure and digital projects. It is  expected to be finalised in 2025.

The digital economy is another area of focus. The ASEAN Digital Economy Framework  Agreement was signed in 2021. It aims to boost digital trade by 20 percent by 2026. This could  improve the region’s competitiveness. However, progress depends on narrowing the gaps  between member states. Some still lack clear rules on data privacy and fintech regulation.

Looking ahead, there are three main risks. First, a deeper trade war would cut into regional  growth. The IMF estimates that a 10 percent drop in global trade could shrink ASEAN GDP  by as much as 1.0 percent each year. Second, internal fragmentation could worsen. If members  keep acting on their own, ASEAN’s role as a regional bloc may fade. Third, a global slowdown  would lower demand for ASEAN exports. The World Bank says that a one-point drop in world  GDP could reduce output in Southeast Asia by 0.5 percent. That would squeeze public budgets  and hurt social programs.

To face these risks, ASEAN needs better coordination. One option is to use the “ASEAN minus-X” format more often. This allows willing members to move ahead without waiting for  everyone to agree. It’s already used in trade but could apply to other areas too. Stronger  monitoring and incentives would help improve compliance. A more active secretariat could  also help drive joint responses.

The central issue is no longer whether ASEAN should choose the US or China. It is whether it  can build enough internal strength to stand on its own terms. Global conditions are not likely  to improve soon. That means ASEAN must act now to prepare.

Reference 

World Bank (2025) 

Global Monthly: April 2025. [online] Available

at: https://thedocs.worldbank.org/en/doc/de57f32fdf177170d1fe413327b553dd 0050012025/related/Global-Monthly-April-2025.pdf

Reuters (2025) 

Tariff levels Southeast Asia faces under Trump plan. [online] Reuters, 3 Apr. Available  at: https://www.reuters.com/markets/asia/tariff-levels-southeast-asia-faces-under-trump-plan 2025-04-03/

ASEAN Secretariat (2023) 

ASEAN Investment Report Special Edition 2023: Investment and the ASEAN Economic  Community 2025. [online] Available at: https://asean.org/wp-content/uploads/2023/12/AIR Special-2023.pdf 

International Monetary Fund (2025) 

Regional Economic Outlook: Asia and Pacific – April 2025. [online] Washington, D.C.: IMF.  Available at: https://www.imf.org/en/Publications/REO/APAC/Issues/2025/04/24/regional economic-outlook-for-asia-and-pacific-April-2025

Hasan, N.M., Sia, H.H. and Faruqi, S.H. (2022) 

ASEAN Governance in Regional Health Policy: The Challenges of Institutional  Effectiveness. Journal of Asian Public Policy, [online] Available

at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9187923/ 

ASEAN Secretariat (2024) 

ASEAN Investment Report 2024: ASEAN Economic Community 2025 and Foreign Direct  Investment. [online] Available at: https://asean.org/book/asean-investment-report-2024- asean-economic-community-2025-and-foreign-direct-investment