The shifting tides of global trade relations have created both challenges and opportunities for various players on the international stage, particularly within the ASEAN region. Over the past few years, ASEAN has witnessed the growing influence of China, especially as the latter grapples with industrial overcapacity and significant export imbalances. This evolution has sparked economic tensions, prompting ASEAN nations to navigate their roles carefully between leveraging Chinese investment and protecting their local industries.
According to recent analyses, China has overtaken the United States and the European Union to become ASEAN's largest trading partner, with its exports to ASEAN countries increasing by 12% in 2024. This growing economic interdependence is complicated by the fact ASEAN’s exports to China have not kept pace, leading to wider trade deficits. For example, Indonesia and Thailand have experienced significant surges in imports from China—nearly 18% and 14%, respectively—which has raised alarms about the long-term sustainability of local industries.
At the heart of these tensions lies China's industrial overcapacity, particularly evident across multiple sectors including steel, petrochemicals, and electric vehicles (EVs). Analysts report additions to Chinese manufacturing were driven by nonmarket policies favoring certain sectors, resulting in price deflation for exports which, in turn, has raised competitive pressures on ASEAN markets. Countries like Vietnam and Thailand are particularly vulnerable, struggling to balance the influx of low-cost goods with their aspirations for industrial growth.
The steel industry showcases these challenges well. China's recent surge—exporting up to 30% of its total steel output to ASEAN—poses direct threats to local producers who find it hard to compete on price. Thai authorities have responded by imposing antidumping duties on Chinese steel products, reflecting the urgency with which ASEAN economies are trying to react to the tide of imports flooding their markets.
A similar pattern emerges within the automotive sphere. Chinese automotive manufacturers are increasingly viewing ASEAN as both a production base and final market. By 2026, it is forecasted Chinese companies will produce over 1 million vehicles across the region, with the challenge of integrating these vehicles within existing local supply chains. Thailand, seeking to position itself as the hub for EV production, faces dual pressures; on one hand, it welcomes Chinese investments, but on the other, it grapples with the potential downsides these may have for home-grown automotive firms and the local labor market.
While these dynamics are reshaping ASEAN, external factors such as U.S. tariffs on steel and aluminum impose additional pressures. The European Union has expressed deep concerns over long-term export losses amounting to nearly €28 billion due to tariffs set to take effect soon. The EU's trade commissioner, Maroš Šefčovič, has highlighted the potential severity of the situation, underlining the fragility of global trade and raising alarm bells across multiple sectors dependent on steel and aluminum.
Germany, traditionally one of the larger exporters to China, is also feeling the impact of reduced demand. The value of German goods exported to China has seen a substantial decline from 7.6% of its total exports to only 5.7% by 2024. Conversely, Dutch exports to China have managed growth, albeit at a lower percentage relative to their total exports. Chinese economic dynamics, once advantageous for these countries, are increasingly characterized by uncertainty and volatility.
Engagement strategies are being discussed and pursued. ASEAN countries are implementing updated trade frameworks focused on enhancing competitiveness and protecting local industries as they continue to balance relationships with both China and Western markets. Strengthening trade tools, diversifying supply chains, and enhancing regional cooperation are at the top of the agenda. Such measures will be necessary to counteract external shocks, ensuring these economies are resilient and positioned to capitalize on future opportunities.
The pursuit of sustainable growth will hinge on ASEAN's ability to navigate these turbulent waters carefully. While the region stands to benefit from technological investments and greener initiatives led by Chinese firms, it must prioritize its industrial health and economic sovereignty. Policymakers are encouraged to engage proactively with powers like the U.S. and EU, seeking collaboration and stability amid these changes.
Overall, the challenge is clear: as the global economy grapples with adjustment pains from shifts like China's industrial policies and restrictive tariffs from the West, ASEAN's path forward lies within its capacity for innovation and cooperation, both regional and global. The interplay of these forces will shape the future of trade and industry across not just ASEAN, but also worldwide.