Amid escalating trade tensions and a global realignment of supply chains, emerging markets in Asia are navigating a new path—one that doesn’t depend solely on China or the United States. Rather than choosing sides in the ongoing economic standoff, these nations are increasingly betting on themselves, bolstering regional trade and economic cooperation to drive long-term growth.
Caught Between Superpowers
Emerging markets in Asia, particularly in Southeast Asia, have been some of the hardest hit by the recent surge in U.S. tariffs. Following the expiration of a 90-day temporary reduction to 10% tariffs, countries outside China now face duties of up to 49% under policies introduced during former President Donald Trump’s so-called “Liberation Day.” This has forced smaller, export-oriented economies like Vietnam, Malaysia, and Thailand to rethink their economic strategies.
According to Ong Kian Ming, Malaysia’s former deputy minister of international trade and industry, these countries are working toward balanced diplomacy. “Southeast Asian countries, including Malaysia, have to negotiate with the U.S. to come up with some sort of a soft-landing spot,” Ong added. “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.”
Lowered Growth Expectations
Goldman Sachs has already lowered its growth forecasts for key emerging markets in Asia. Vietnam’s GDP is now expected to grow by 5.3% in 2025, down from a consensus estimate of 6.5%. Malaysia’s growth forecast has been revised to 3.8% from 4.7%, and Thailand’s to just 1.5% compared to an earlier 2.7% projection.
Despite these challenges, the region is finding strength in intra-regional cooperation and economic diversification.
China Reaches Out to Strengthen Ties
Chinese President Xi Jinping’s recent visits to Vietnam, Malaysia, and Cambodia were aimed at reinforcing Beijing’s role as a stable partner in the region. During these visits, Xi called on the Global South to unite in defending the shared interests of developing nations.
That message appears to be gaining traction. Rebeca Grynspan, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), noted that South-South trade is on the rise. “South-South trade has already been growing faster than North-North trade,” she said on CNBC’s Squawk Box. “This trend is gaining momentum due to the shift in U.S. trade policy.”
ASEAN Pushes for Greater Economic Integration
Malaysian Prime Minister Anwar Ibrahim, who currently chairs ASEAN, echoed this sentiment at the ASEAN Investment Summit. He emphasized the need for deeper economic integration and trade cooperation among Southeast Asian nations, calling it vital for regional stability and self-reliance.
Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank, explained that while there are no “easy solutions,” emerging markets in Asia are using a combination of short- and medium-term strategies. “In the near-term, the authorities will have to tap fiscal and monetary policy tools to support sectors hit by tariffs. For the medium-term, diversifying trade and investment partners is key,” she said.
The “China+1” Strategy Still Holds Value
A vital part of that diversification strategy is the ongoing “China+1” trend, which encourages companies to shift production from China to alternative markets across Asia. This strategy has already benefited countries like Vietnam and Cambodia. According to World Bank data, Cambodia’s exports as a share of GDP rose from 55.5% in 2018 to 66.9% in 2023—an indication of increased integration into global supply chains.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, believes this is just the beginning. “These emerging markets are more attractive than China as long-term manufacturing hubs,” he said. “Tariffs may disrupt trade in the short term, but they don’t erase the labour cost advantages of emerging markets in Asia.”
Conclusion: Betting on Themselves for a Resilient Future
While the trade war poses undeniable challenges, the crisis is also fueling a shift in economic power dynamics. Rather than acting as pawns in a U.S.-China rivalry, emerging markets in Asia are staking a claim for greater independence and regional leadership. By embracing intra-regional trade and aligning with broader South-South cooperation efforts, they are carving out a more resilient and self-sustaining future…
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