Emerging markets have found themselves between a rock and a hard place amid an escalating trade war, seemingly forced to choose between China and the U.S. Instead, they’re choosing a third path: betting on themselves and strengthening regional cooperation.
Finding Their Own Path in the Trade War
“Southeast Asian countries, including Malaysia, have to negotiate with the U.S. to come up with some sort of a soft-landing spot,” Ong Kian Ming, Malaysia’s former deputy minister of international trade and industry, told CNBC. “But at the same time, it doesn’t prevent us from working with other countries – not to screw the U.S., but to benefit ourselves.”
Southeast Asia is particularly vulnerable to an escalating global trade war. Goldman Sachs has significantly cut its growth forecasts for Asian emerging markets:
- Vietnam: 2025 GDP growth of just 5.3% (versus expected 6.5%)
- Malaysia: forecast reduction to 3.8% (from original 4.7%)
- Thailand: dramatic drop to merely 1.5% (compared to 2.7%)
Impact of Trump’s Tariffs and China’s Offensive
Southeast Asian nations were among the hardest hit during U.S. President Donald Trump’s self-declared “Liberation Day.” After a 90-day temporary reduction to 10% tariffs for all countries (except China) expires, they face tariffs of up to 49%.
Chinese President Xi Jinping wasted no time and visited Vietnam, Malaysia, and Cambodia earlier this month to promote Beijing as a pillar of stability and strengthen ties in the region. During his visits, he called on the Global South “to uphold the common interests of developing countries” – a clear strategy to expand influence as the U.S. increases trade barriers.
Growing Importance of South-South Trade
UN Trade and Development (UNCTAD) Secretary-General Rebeca Grynspan provided a remarkable insight: “One interesting indicator that we have from the last year, in this century, is that South-South trade has already been growing faster than North-North trade. So the acceleration of South-South trade, I think, will take a new dynamism because of the new trade policy of the U.S.”
Anwar Ibrahim, Malaysian prime minister and current rotating chair of ASEAN, echoed this sentiment, calling for more trade and greater economic integration within the region in a keynote speech at the ASEAN Investment Summit in early April.
Strategies for Survival and Prosperity
Emerging economies plan to employ various approaches to mitigate the impact of U.S. tariffs:
- Short-term measures: Utilizing fiscal and monetary tools to provide counter-cyclical support to affected sectors
- Medium-term strategy: Diversifying trade and investment partners beyond the U.S. and China
- “China+1” strategy: Continuing to attract manufacturing shifted from China – an approach that has already brought success
- Regional integration: Strengthening trade ties within ASEAN and other Global South groupings
The success of these strategies can already be observed. In Cambodia, for instance, according to World Bank data, the share of goods and services exports in GDP rose from 55.5% in 2018 (before Trump’s first China tariffs) to 66.9% in 2023.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, confirms: “These tariffs do nothing to eliminate the labor cost competitiveness of emerging Asia ex-China economies, which will remain a big selling point for multinationals in the long term.”
As the trade war between the U.S. and China continues, emerging Asian markets are discovering that the best strategy may be to rely on neither superpower, but instead strengthen their own regional ties and independence.
