Emerging markets, caught in the crossfire of escalating trade tensions between the US and China, are forging a new path – prioritizing regional cooperation and intra-trade. Instead of choosing sides, countries like those in Southeast Asia are focusing on strengthening their own economic ties and diversifying their trade partners. This strategic shift is driven by the vulnerability these economies face to the unpredictable nature of global trade wars, particularly the impact of US tariffs.
The impact of US tariffs, especially after a temporary reduction expires, is expected to significantly affect Southeast Asian nations, leading to revised GDP growth forecasts from institutions like Goldman Sachs. However, this challenge has spurred a proactive response. Malaysia’s former deputy minister of international trade and industry, Ong Kian Ming, highlights the need for negotiation with the US while simultaneously pursuing beneficial collaborations with other nations. This approach underscores a move away from dependence on either superpower.
The rising importance of intra-regional trade is further emphasized by UNCTAD Secretary-General Rebeca Grynspan, who points to the accelerated growth of South-South trade exceeding North-North trade. This trend is further reinforced by Malaysian Prime Minister Anwar Ibrahim’s call for greater regional economic integration. These statements reflect a growing consensus among emerging economies to leverage their collective strength.
While acknowledging the absence of easy solutions, economists like Lavanya Venkateswaran from OCBC Bank highlight the use of fiscal and monetary policies to provide immediate support, alongside long-term strategies for diversifying trade partners. The ‘China+1’ strategy, which saw businesses shift production from China to other Southeast Asian countries during the first Trump administration, remains a relevant medium-term approach. This diversification is further supported by the view that these emerging markets offer long-term advantages, such as labor cost competitiveness, compared to China.
The World Bank’s data on Cambodia’s export growth further underscores the success of this diversification. The country saw a significant increase in exports as a percentage of GDP after the imposition of US tariffs on China. This trend is expected to continue, as Miguel Chanco from Pantheon Macroeconomics notes that the establishment of new supply chains takes time, making Southeast Asian economies particularly attractive in the long run. The focus now is less on choosing between the US and China, and more on building resilient regional economies capable of navigating global uncertainty.
