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  • Global Research
    • General Research Insights
    • Emerging markets

ASEAN Perspectives

  • Article

Bucking the global trend in trade

Will ASEAN follow other regions around the world by looking to protect itself from China’s growing dominance in trade?

Like elsewhere, yes, ASEAN’s trade deficit with China is deteriorating. But this is more a result of supply-chain rejigging than a product of stiffening competition from Chinese imports. With the help of trade with China, ASEAN’s influence in global trade is also deepening, especially in markets that are trying to shift away from China.

Trade data supports this relationship. Although ASEAN’s trade deficit with China has deteriorated by USD35bn since 2019, its trade surplus with the rest of the world has improved threefold by USD107bn, as firms relocate their production to the region to avoid trade barriers and make use of cheaper inputs from China to stay competitive. China may be at the core of global trade, but ASEAN is first in line when it comes to diversifying it. Below we identify three ASEAN countries that are benefiting in particular:

Vietnam: Major beneficiary of supply-chain relocation as China expands its FDI footprint.

Malaysia: Concentrated in green sectors, investments from China have been robust.

Indonesia: In 2023, about 50% of China’s investment went to ASEAN, of which the largest chunk went to Indonesia, beefing up its smelter capacity (Nikkei, 7 March 2024).

Still, all this isn’t to say that ASEAN is immune from the winds of rising protectionism. The benefits of supply-chain rejigging and the challenges of competition are uneven across countries and commodities. Below we identify two economies that are challenged:

Thailand: The country is facing heavy price competition from China. Thailand is particularly big in making: 1) hard disk drives (HDDs), but these are at the end of their life cycle, and China has always been the bigger manufacturer, and 2) internal combustion engine cars, but it is finding it difficult to compete with China’s dominance in EVs.

Philippines: The Philippines is not a beneficiary of supply-chain rejigging from China. Therefore, it is unable to capitalise on lower input prices to make its exports more competitive.

Our overall view? We don’t see ASEAN building walls as high as some developed countries, but there may be piecemeal or indirect protectionist measures.

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