The latest round of tariffs between the United States and China – likely to escalate further as President Donald Trump campaigns on an “America First” platform and Chinese President Xi Jinping doubles down on economic self-reliance – has once again raised concerns across ASEAN. Many fear that the region will be caught in the crossfire of a global trade war. However, beyond the inflationary pressures that are inevitable on both sides, there is little reason for Malaysia and ASEAN to panic.

Regardless of how the trade war unfolds, neither Washington nor Beijing can afford to disengage from ASEAN. Trump, despite his tough rhetoric, has repeatedly acknowledged the strategic importance of ASEAN as a counterweight to China’s dominance. In his first presidency, he sent high-level delegations to the region, including then-Secretary of State Mike Pompeo, who assured ASEAN leaders of continued US economic engagement.

Even his withdrawal from the Trans-Pacific Partnership (TPP) was accompanied by promises of a bilateral trade push with key ASEAN economies, particularly Vietnam, Malaysia and Singapore.

Xi, on the other hand, has made it clear that ASEAN remains central to China’s Belt and Road Initiative (BRI). The Regional Comprehensive Economic Partnership (RCEP), which Beijing championed, has deepened economic ties between China and ASEAN. Trump and Xi cannot afford to alienate ASEAN especially now that ASEAN is the largest trading partner of China since 2022. Cumulatively, US investment in ASEAN is not inferior to, nor less than, China's.

While some analysts fear that China’s slowing economy would reduce its appetite for ASEAN trade, the opposite has been true – Beijing is looking to diversify its economic dependencies, making ASEAN even more critical.

Dr Chad Bown, a leading expert on international trade at the Peterson Institute for International Economics (PIIE), argues that “tariffs are ultimately a tax on consumers, and both the US and China are aware that prolonged escalation will hurt their own economies more than their rivals”. In this sense, the latest round of tariff hikes – should they persist – will only reinforce ASEAN’s role as a strategic alternative for both superpowers.

A major reason ASEAN should not fear this tariff war is its growing role in global supply chains. Its manufacturing resilience. Malaysia, Vietnam and Thailand have emerged as key manufacturing hubs, particularly in the electronics and semiconductor sectors.

According to a 2024 report by the World Trade Organisation (WTO), Malaysia’s semiconductor exports to the US increased by over 20 per cent after the first US-China tariff war in 2018, as companies sought to bypass duties imposed on Chinese goods.

Even now, with Washington expected to tighten restrictions on Chinese tech, ASEAN remains a major beneficiary. Apple, for example, has expanded its supply chain into Vietnam and Malaysia, mitigating risks associated with US-China tensions. The same trend applies to the auto industry, with EV supply chains increasingly shifting toward ASEAN.

Robert Lighthizer, former US Trade Representative and one of the architects of Trump’s tariff policies, has stated that tariffs are meant to reduce reliance on China – not on trade itself. He points out that many US companies “will seek alternative supply sources rather than return to purely domestic production”, which is exactly why ASEAN continues to be an attractive trade partner.

The one area where ASEAN will feel the impact of this tariff war is inflation. The latter is a real concern. Higher import costs from both China and the US will ripple across global markets, raising prices on everything from consumer electronics to industrial materials. Malaysia, as an open economy, will not be immune.

A report from the Asian Development Bank (ADB) warns that persistent tariff hikes could add as much as 0.5 per cent to inflation rates in ASEAN economies by the end of 2025. For Malaysia, where food and energy imports remain significant, this will likely translate into higher consumer prices.

However, Malaysia’s flexible trade policies, including its free trade agreements (FTAs) with both China and the US, provide a cushion. Unlike economies that are heavily dependent on one trade partner, Malaysia can adjust its import-export flows to manage cost pressures.

In sum, ASEAN is the perfect swing player in international relations. Not necessarily always looking for a hedge to arbitrage the risks.

At the heart of this China-US trade war is a political contest between two superpowers that need ASEAN more than ASEAN needs them.

Whether it is Trump’s desire to counter China or Xi’s push to strengthen China’s supply chain security, ASEAN will remain an indispensable player in global trade.

While inflationary pressures are real, they are manageable. The real winners will be those ASEAN economies that can navigate this period of uncertainty by leveraging their trade flexibility – something Malaysia has done exceptionally well.

Thus, instead of fearing the latest tariff battle on March 4, 2025, ASEAN should recognise the leverage it holds. From eggs to electronics, the US and China still need ASEAN.

With a strategic approach, it can emerge stronger, turning great power competition into economic opportunity.

-- BERNAMA

Phar Kim Beng, PhD, is Professor of ASEAN Studies at International Islamic University of Malaysia.