When US President Donald Trump hit ASEAN nations with tariffs averaging 33%, it exposed the vulnerability of the region’s success as a global production hub.
At a regional meeting held earlier this month in Kuala Lumpur, leaders sought to demonstrate unity. Malaysian Prime Minister Anwar Ibrahim, this year’s ASEAN chair, said the world is “witnessing the fraying of the global order.”
“Therefore, ASEAN must rely more on itself,” he said. “This means strengthening intra-ASEAN trade. We must move beyond rhetoric to execution.”
Yet, Anwar’s words highlighted the ten-member bloc’s very own struggle. Despite a total population of around 700 million, ASEAN trades more with external partners than with itself. Intra-bloc trade made up 21% of its total in 2024, ASEANstats data showed. This figure has largely stagnated over the past 25 years and lags far behind the European Union’s 60%.
In contrast, its steadily rising share of trade with China in 2024 stood at 20% while that with the US was 12%.
Trump’s latest tariffs have revived calls for the region to boost internal trade to mitigate geopolitical risks. Darren Tay, head of Asia Pacific country risk at Fitch Solutions’ BMI, estimates the tariffs could shave up to three percentage points off Vietnam’s gross domestic product (GDP) this year and about one percentage point off Singapore’s, with regional losses averaging 1.5 percentage points.
But analysts say ASEAN’s weak internal trade stems from structural and institutional limitations, such as export-driven economies, wide income disparities and a reliance on similar intermediate goods or commodities. While 99% of intra-bloc tariffs have been eliminated, non-tariff barriers have surged and rules of origin are inconsistent. Meanwhile, political coordination remains limited, and fears are rising that the region could become overly reliant on China, with a risk of more cheap goods flooding in.
“These frictions discourage businesses from using the ASEAN Free Trade Area (AFTA) preferences, limiting the full potential of regional integration,” said Lili Yan Ing, secretary-general of the International Economic Association (IEA).
Nowhere is the pain caused by Trump’s tariffs—and the need for change—more evident than in Indonesia’s Lampung, which is located on the southern tip of Sumatra. Here, seafood processor Siger Jaya Abadi is already feeling the pinch. For 14 years, it has pasteurized and canned blue swimming crab for US buyers, generating up to USD 7 million in annual revenue.
“[The tariffs are] a very big problem,” said Yoga Sadana, a commissioner at the company. Prices have tumbled from USD 20–21 per pound in 2022 to just USD 8–9 in recent weeks. In 2024, Indonesia exported USD 378 million worth of processed crab, with 87% going to the US, accounting for 41% of US imports.
Yet, diversification is proving difficult. He describes the ASEAN market as “low,” with Singapore the only potential destination. Meanwhile, “Europe only wants one or two specs of crab meat but when we buy from suppliers, we can’t just take one or two specs. We have to buy the whole crab.”
Despite the near elimination of tariffs under the 2010 ASEAN Trade in Goods Agreement (ATIGA), only Malaysia and the Philippines have seen modest increases in intra-bloc trade. In 2024, 11% of Vietnam’s trade was with its neighbors, the lowest share among the ten nations. Thailand, Indonesia, the Philippines, and Singapore fit in the 20–25% range.
“One of the lessons learned is that businesses should also look to diversify exports to other markets or expand locally,” said Jens Lottner, CEO of Vietnam’s Techcombank, referring to the country’s 46% “reciprocal” tariffs.
Man Thi Thanh Thao of Vietnamese metal supplier Dong Duong Metal said the need for diversification is shown by the fact that major US-focused clients are shelving expansion plans. One Chinese streetlight maker is considering building a US plant to sidestep duties.
But Damien Dujacquier, managing partner of consultancy Roland Berger Southeast Asia, estimates companies could take at least 12–18 months to shift simple manufacturing operations, and two to five years for capital-intensive industries, adding that such decisions “will be very difficult to make” amid the current uncertainty.
Unlike the EU, which began with a goal of becoming a common market, ASEAN emerged as a Cold War alliance to promote regional peace and security, with no supranational institutions to enforce economic integration. Its diversity of political systems and races, and wide income disparity adds to the challenge.
“The structure of the ASEAN economy has historically been largely driven by foreign direct investments,” said Woon Khai Jhek, senior economist at RAM Rating Services in Malaysia. “Many multinational companies have set up their production hub in one of the ASEAN countries to feed the output into global value chains.”
On the demand side, however, the region still lags. ASEAN’s middle class, while young and growing, has limited purchasing power. Singapore, the region’s most advanced economy, has a market of just six million people.
Regional economies also often compete against rather than complement one another. Many export the same goods like palm oil, rubber, rice, footwear, garments, electronics, and machinery, creating natural rivalries. ASEAN also lacks globally recognized high-value brands akin to Apple, Samsung, and BYD.
“Because the products, climate and resources are fundamentally similar, the demand for these goods within the same region is not significant,” said Leonardo Lanzona, an economist at Ateneo de Manila University.
Rani Mayasari, a Bandung-based coffee producer and exporter who talked about Indonesia’s “global reputation” for specialty coffee, said the company is seeking alternative markets like Europe and the Middle East in the short term. But, she added, “Vietnam and Thailand are catching up fast with processing technologies,” producing goods that closely mimic Indonesian specialty offerings.
Adding to the headache are non-tariff barriers such as inconsistent standards, safety regulations, and cumbersome certificates of origin. These measures have multiplied, with the total number implemented by ASEAN nations more than doubling to 9,494 between 2008 and 2020, according to CARI ASEAN Research and Advocacy. The bulk were introduced by Thailand, the Philippines, and Indonesia.
“The number of non-tariff measures … is a big frustration,” said Nazir Razak, chairman of the ASEAN Business Advisory Council (BAC), a regional business lobby, and former CEO of Malaysian bank CIMB Group. “ASEAN doesn’t have any effective mechanism to enforce the elimination of trade-distorting nontariff measures.”
Woon from RAM Rating Services noted an International Monetary Fund study published in 2022 suggested that reducing nontariff measures could potentially increase ASEAN’s GDP by 1.6%.
Nazir, however, noted there are estimates that structural constraints could cap intra-ASEAN trade at about 30% of total trade. But, he added, boosting that share is seen as essential for resilience.
With Trump’s tariffs on China, some fear the region may become a backdoor for Chinese trade. “Clearly, with tariffs at more than 100%, firms will be keen to figure out solutions to avoid paying,” said Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore. “These legal and illegal options will proliferate quickly.”
“Even firms that have no connection to anything Chinese might have to show that they do not, which would be a huge new compliance burden,” she added.
Trump’s 145% tariffs on China could also accelerate the flood of cheap Chinese products into Southeast Asian markets, with steel, textiles, electric vehicles, and e-commerce goods in the vanguard. Overdependence on the Chinese economy could also make the region vulnerable to economic fluctuations in China.
“ASEAN is a net importer from China, but a net exporter to the US,” said Hafidzi Razali, CEO of advisory firm Strategic Counsel in Malaysia. “This asymmetry exposes the region to strategic shifts in US-China trade relations.”
Despite the hurdles, ASEAN continues to pursue deeper ties. These include the ASEAN Economic Community, which aims to create a single market and production base for the bloc. The ASEAN BAC has proposed an “ASEAN Business Entity” badge to ease the movement of labor and capital across the bloc.
IEA’s Ing said ASEAN’s “flexibility” allows countries to pursue multiple bilateral deals while collaborating regionally. Unlike a customs union, ASEAN does not impose common external tariffs, which she sees as a strength.
While member states are “natural competitors,” Ing said, “it highlights the opportunity to develop stronger regional value chains, where each country contributes a specific role in a larger production network.”
Even the Philippines, whose economy is largely driven by domestic demand, is courting investment amid the tariff fallout. With US tariffs on Philippine goods relatively low at 17%, Manila sees an opening. The Philippine Economic Zone Authority said it expects companies facing higher tariffs elsewhere to consider relocating.
Very few expect or even hope ASEAN will become another EU, which has struggled with internal upheavals from the Eurozone debt crisis to repercussions from the Russia-Ukraine war. ASEAN’s diversity and lack of centralized institutions are seen as both a limitation and a reason for its endurance.
“One could argue that some of these limitations have been key to ASEAN’s longevity and success,” Nazir said. “So we need to work around our own constraints instead of just adopting what has been introduced in the EU.”
Bruno Jaspaert, chairman of EuroCham Vietnam—which represents 1,480 EU companies in Vietnam, said Trump’s policies might further unite ASEAN, if the EU is anything to go by. “The bigger the enemy, the stronger the united voice. Europe today is more united than ever before because there is a common enemy … a nation that decided to declare a trade war.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.