On April 2, 2025, U.S. President Donald Trump once again shook the global stage by announcing a new tariff policy targeting several key trading partners. Of particular concern was the decision to impose high import tariffs on goods from ASEAN countries. This move, framed as part of a "reciprocal tariffs" policy, aims to balance the U.S. trade deficit and protect domestic industries. With the new tariffs set to take effect tomorrow, April 9, 2025, ASEAN countries now face significant challenges in maintaining economic and trade stability.

The Background on U.S. Tariff Policy

“Restrictive Trade and Protectionist Practice” have been a hallmark of the Trump administration. The "America First" principle has underpinned U.S. foreign and trade policies since 2016. Earlier the focus was Only China. This time around, ASEAN is in the crosshairs, with Trump citing the region as a haven for Chinese companies seeking to evade earlier U.S. tariffs. Many factories and supply chains were relocated to Southeast Asia following the U.S.-China trade war. He described the new tariffs as a matter of fairness:

"We’re only asking for fairness. If they impose high tariffs on our products, we will do the same," he declared during his Liberation Day speech on April 2, 2025.

This policy was formalized through Executive Order 14256, titled "Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits”. The document stated that large and persistent trade deficits have weakened the U.S. manufacturing base and created excessive dependence on foreign nations, which are considered a significant threat to the U.S. economy and national security. It provoked that “ASEAN Solidarity” was a loop-hole for China to avoid tariffs. Nothing, could be further than that unresearched accusation.

ASEAN Tariffs, and their Economic Impact

The following is a list of ASEAN countries affected by the new U.S. tariffs (in order of magnitude):

• Cambodia - 49%
• Laos – 48%
• Vietnam - 46%
• Myanmar – 44%
• Thailand - 36%
• Indonesia - 32%
• Malaysia - 24%
• Brunei – 24%
• Philippines - 17%
• Singapore - 10%

The Economic Impact on ASEAN

These high tariffs pose a serious threat to ASEAN exports to the U.S. Industries such as electronics, textiles, footwear, and automotive manufacturing are heavily reliant on the American market. In Indonesia, for example, the electronics and textile sectors are expected to come under significant pressure, while Vietnam, which has long served as an alternative global manufacturing hub, will also be heavily impacted.

This situation could lead to a decline in trade volume, reduced labor efficiency, and currency devaluation. Additionally, foreign investors may begin to question the region's stability unless strategic policy responses are introduced.

The Immediate Consequences:

• Market volatility: Stock markets in Vietnam (-6.7%), Indonesia (-9.6%), and Thailand (- 1.1%) plummeted, while currencies like the Vietnamese dong and Indonesian rupiah hit record lows. About US$26 Billion was wiped out in the market, in One Week!
• Vietnam could lose 1% of GDP in exports or US$8 billion, (Vietnam exports to the U.S. is 30% of its GDP, includes Apple & Samsung, sports goods such as Nike and Under Armor. A 46% tariff threatens 80% of manufacturers with layoffs. Thailand will lose 3% GDP of its agriculture exports, auto parts (Toyota and Nissan) and potential job losses in energy and aircraft sectors (or US$17 billion) and Cambodia's garment industry faces collapse (US$20 Billion!).
• Supply chain disruptions could be worse than Covid!

ASEAN + 3 have reached out to the US - and to Each Other

• China’s immediate reaction, move significant manufacturing and agriculture trade to ASEAN. Korea and Japan already have significant manufacturing in Thailand and will reconsider Vietnam and Cambodia as manufacturing bases.
• Vietnam offered to eliminate its own tariffs (avg. 9.4%) and buy Boeing jets to secure a delay.
• Thailand Proposed importing more U.S. energy and agricultural products.
• Malaysia (the 2025 ASEAN Chair) is leading efforts for a “Unified Regional Response” including leveraging RCEP and CPTPP trade agreements to reduce U.S. dependence.
• Cambodia has very limited leverage but has offered tariff cuts on 19 US product categories.
• Malaysia and Singapore will speed up their investments in semiconductors, AI and Embedded (digital) finance to offset export losses.
• Vietnam is strengthening bilateral cooperation with the European Union and China to seek alternative markets.
• Indonesia is working to enhance the value-added content of its exports, aiming to move beyond raw material exports, and will open up more perishable goods supply to nextdoor Singapore.

The Impact on Banking in ASEAN

The imposition of new tariffs by the Trump administration has significant implications for ASEAN banks, affecting their profitability, loan portfolios, and overall economic stability. Below is a rudimentary analysis of the impact:

Increased Loan Risks and Credit Stress

Higher borrower defaults: The tariffs disproportionately target export-driven economies like Vietnam (46% tariff) and Thailand (36%), where exports to the U.S. account for 12% and 9% of GDP, respectively. This could strain businesses reliant on U.S. trade, increasing non-performing loans (NPLs) for ASEAN banks. Industries like textiles (Vietnam, Cambodia), autos (Thailand), and semiconductors (Malaysia, Singapore) face direct hits, potentially triggering corporate distress and loan defaults.

Pressure on Interest Rates and Profit Margins

Monetary policy easing: Central banks in ASEAN may accelerate rate cuts to counter growth slowdowns (e.g., Vietnam, Thailand), compressing net interest margins (NIMs) for banks.

Currency depreciation: Tariff-induced capital outflows could weaken currencies like the Thai baht and Vietnamese dong, raising costs for dollar-denominated loans and hedging needs.

Foreign Direct Investment (FDI) Hit

High-tariff countries (e.g., Vietnam, Cambodia) may see reduced FDI in export manufacturing, while lower-tariff economies (e.g., Philippines, Singapore) could attract re locations. This alters credit demand and sectoral exposure for banks. Furthermore, ASEAN banks financing crossborder trade may face higher risks if tariffs disrupt regional supply chains, particularly in electronics and autos.

Long-Term Structural Adjustments

Banks and Capital Markets may need to rebalance portfolios toward domestic consumption and less tariff-exposed sectors (e.g., India’s services-driven economy). This heightened volatility could accelerate adoption of fintech solutions for risk management and SME lending.

ASEAN (and ASEAN+3) Strikes Back!

To mitigate these impacts, the region must adopt a mix of strategic diplomacy, regional integration, and economic diversification. Below is a synthesis of actionable strategies based on expert analyses and government responses:

1) Prioritize Regional Integration Over Retaliation:
Rather than engaging in tit-for-tat tariffs, ASEAN should deepen intra-regional cooperation. Strengthening mechanisms like the Regional Comprehensive Economic Partnership (RCEP) and the ASEAN Economic Community (AEC) can reduce reliance on the U.S. market, which accounts for only 19% of ASEAN’s total exports. Accelerating trade in services, digital economies, and green technologies - sectors growing faster than traditional goods trade - can further insulate the region from external shocks. For example, Vietnam and Thailand are already exploring diversification of export markets to the EU, India, and Australia.

2) Engage in Strategic Diplomacy and Negotiations
Many ASEAN nations, including Indonesia, Vietnam, and Thailand, are dispatching delegations to Washington to negotiate tariff relief. The Unified ASEAN representation: Malaysia, as ASEAN Chair, is coordinating a collective regional response to enhance bargaining power.

3) Diversify Export Markets and Supply Chains
Expanding trade with non-U.S. partners like EU, Japan, India, China and Korea are potential alternatives. Cambodia and Laos, heavily impacted by tariffs, could leverage China’s Belt and Road Initiative for market access. Encouraging multinational firms to localize supply chains within ASEAN, rather than relying on “questionable” transshipment hubs. Enhance logistics and infrastructure and improving cross-border connectivity under initiatives like the “ASEAN Single Window” could potentially reduce trade friction too.

4) Investing in high-growth sectors such as ASEAN Digital services, renewable energy, and green technologies are less tariff-exposed and align with global demand trends. Furthermore, adopting stringent ASEAN-wide ESG standards and imposing environmental levies on U.S. investments that fail sustainability criteria could generate revenue while deterring exploitative practices.

5) Leverage Multilateral Platforms and Non-Tariff Tools. Challenging the legality of U.S. tariffs through multilateral dispute mechanisms and WTO. Developing regional payment systems (ASEAN wide digital currencies) to reduce dependency on USD-dominated trade, or, Taxing profits of U.S. multinationals operating in ASEAN or restricting access to strategic resources like critical minerals.

Longer-term Impact? The US Hurts, ASEAN Bounces back!

For the unsuspecting American consumer (and voter) at first glance, imposing tariffs may seem like a patriotic way to protect domestic industries and jobs. For a short while, it could even appear effective, as tariff-driven dollars come in. But in the next fiscal cycle, such protection will lead to complacency. US industries shielded by tariffs lose incentives to innovate and adapt. Worse still, tariffs almost inevitably provoke retaliation, escalating into trade wars that will hurt the US Tech companies, US Manufactures, US Agriculture and US Consumer goods.

Artificially inflated prices due to import duties prop up inefficiency. Eventually, the US consumer demand will decline, domestic markets will shrink, businesses fail and jobs will be lost. Furthermore, US’s stance on immigration (especially Mexico) will drive a huge shortage of farm and non-farm workers, driving US manufacturing and services cost to an All-Time-High.

For India, China and Asean nations, the US accounts for only 18%, 16% and 19% of exports, respectively. ASEAN and Asian economic policymakers should also bear in mind that the cost of these tariffs will fall largely on US consumers, and within the 4 years of the existing administration, the US Consumers will revolt against the high inflation, and cost of goods & services.

Strategic, targeted countermeasures, like China’s belt-and-road initiatives, may be necessary for ASEAN-wide trade. ASEAN+3 can meet and focus on strengthening regional integration and economic resilience, after all, the vast majority of global trade – 87% – does not depend on the US. We should priorities reducing internal barriers to trade, enhancing regional cooperation, and investing in building resilient supply chains – and start Leading the Global Digital, AI and ESG initiatives – because we can!