Emerging markets are finding a third way in the escalating global trade war — betting not on China or the U.S., but on themselves.
Caught between two giants, Southeast Asian nations are taking matters into their own hands.
Ong Kian Ming, Malaysia’s former deputy minister of international trade and industry, said Southeast Asian countries like Malaysia must “negotiate with the U.S. to come up with some sort of a soft-landing spot,” but added, “it doesn’t prevent us from working with other countries — not to screw the U.S., but to benefit ourselves,” according to CNBC.
It is a high-wire act. Goldman Sachs recently cut growth forecasts for Asian emerging markets, warning that smaller, export-driven economies are most exposed to rising tariffs.
Vietnam’s GDP is now expected to grow 5.3% in 2025, lower than consensus estimates of 6.5% cited by Goldman.
Malaysia’s forecast slipped to 3.8%, and Thailand’s to just 1.5%.
The pain sharpened on what former U.S. President Donald Trump called “Liberation Day,” when temporary tariff reductions were lifted, slapping emerging markets with duties as high as 49%.
Southeast Asia, already juggling strategic ties with Beijing and Washington, now faces an even harder balancing act.
Yet the region seems to be leaning inward. Chinese President Xi Jinping’s visits to Vietnam, Malaysia, and Cambodia earlier this month framed China as a stable partner.
Xi called for the Global South “to uphold the common interests of developing countries,” appealing to a growing sense of regional self-reliance.
Signs of that shift are already clear. Rebeca Grynspan, Secretary-General of UNCTAD, noted that South-South trade “has already been growing faster than North-North trade,” telling CNBC that the new U.S. trade stance could inject “new dynamism” into these relationships.
Malaysian Prime Minister Anwar Ibrahim, the current rotating chair of ASEAN, echoed the push, calling for more trade and tighter economic integration within the region during a keynote speech at the ASEAN Investment Summit in April.
Still, no easy road lies ahead. Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank, said that in the near term, “the authorities will have to tap fiscal and monetary policy tools to provide counter-cyclical support to affected sectors of the economy,” and for the medium term, “the authorities understand the need to diversify trade and investment partners.”
It helps that the “China+1” strategy remains attractive. During the Trump administration’s first term, many Southeast Asian economies benefited as global companies shifted production out of China.
Cambodia, for instance, saw its exports rise from 55.5% of GDP in 2018 to 66.9% in 2023, according to World Bank data — a clear testament to its growing strength.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, agreed, adding that tariffs do not “eliminate the labor cost competitiveness of EM Asia ex-China economies (versus China),” making the region an enduring favorite for multinational manufacturers.
“New supply chains won’t be created overnight,” he told CNBC.
For Southeast Asia, the trade war has become a call to arms — a reminder that business resilience often grows strongest under pressure.
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