By Vaibhav Tandon

In the game of chess, the humble pawn is often considered the weakest piece. Its movement is limited, and it is easily captured.  But grandmasters contend that pawns play a vital role in both defense and offense.  They act as a shield in protecting the key pieces, while also possessing the unique ability to metamorphose into something more powerful upon reaching the opposite side of the board.  

Even the smallest pieces play an important role in tactical games.  Members of the Association of Southeast Asian Nations (ASEAN) are also more than just mere pawns on the geopolitical chessboard that rests between the world’s two largest economies.  Many members punch above their economic weight in international trade.  But their power may also make them targets in the mounting global trade battle.

ASEAN accounted for almost $2 trillion or 9% of global exports in 2023, on par with the U.S.  The same group of nations is China’s largest and the United States’ fourth-largest trading partner. 

Thanks to various trade agreements, ASEAN shares deep commercial linkages with Beijing, and its members have long benefitted from the mainland’s rapid growth.  Regional supply chains are deeply integrated and heavily reliant on supplies from China that support exports to global markets.  China accounted for nearly 26% of ASEAN's total imports last year, up from 16% a decade ago.

U.S.-ASEAN relations have also been thriving, especially since the start of the U.S.-China trade war in 2018.  The U.S. has emerged as the top destination for ASEAN goods, accounting for 15% of their total exports.  America is also the largest source of cumulative foreign direct investment in the region, with the total capital stock reaching close to $500 billion last year.  This is almost double the combined U.S. investments in China, Japan, South Korea and Taiwan.  Southeast Asian economies have progressed up the value chain from producing simple labor-intensive or low-cost goods like apparel and footwear to more capital intensive and high-tech items like semiconductors.

Vietnam has been the standout beneficiary of the shift in supply chains prompted by the pandemic.  Large U.S. corporations have been de-risking by moving production lines to the mainland’s southern neighbor.  Vietnam alone shipped goods worth over $400 billion to the U.S in 2024.  The U.S. has emerged as the leading market for Vietnamese products, accounting for almost 30% of its exports.  The surge in shipments has contributed to a record $124 billion trade surplus with the United States, the third-largest after China and Mexico. 

Other regional economies like Malaysia and Singapore have gained from the diversification momentum, too.  Malaysia is witnessing growth of high-tech sectors as part of its “China plus One” effort, while Singapore has expanded its footprint in financial services.

Despite all of this success, there may be trouble ahead for economies in the region.  So far, the U.S. administration’s attention has largely focused on trade imbalances with its North American neighbors and China.  Measures against Europe may be announced this spring.  But ASEAN members could soon find themselves the subject of unwanted attention from Washington.

Of the 15 countries running the largest trade surpluses with the United States, nine are in Asia.  In aggregate, southeast Asia enjoys a $200 billion surplus with the United States.  Vietnam and Thailand are at the most risk due to their high imbalances and their high degree of integration with China.  Vietnam’s trade gap with the U.S. has more than tripled while Thailand’s has widened almost five-fold since 2017.   

Tariff avoidance by Chinese companies in the form of rerouting or transshipment is also likely to draw President Trump’s attention.  While 30% of Vietnam’s exports went to the U.S. in 2024, about 38% of Vietnamese imports came from China.  Mainland firms are fueling almost one in three new investments in the country, making it an important offshore manufacturing base for them.  Vietnam’s industries are also vulnerable to the recently-announced steel and aluminum tariffs, as it exports more steel to the U.S. than China, in value terms.

Indonesia and the Philippines have smaller trade imbalances with the U.S., putting these countries at lower risk of tariffs.  The latter is mostly a services exporter, which has not yet been of concern to the U.S. administration.

Trade-driven industrialization has been a powerful driver of growth in Southeast Asia, and it has pulled millions out of poverty.  The share of exports in gross domestic product (GDP) for the region has grown continuously since the 2000s.  Vietnam's goods shipments to the United States accounted for 30% of its GDP in 2024, the highest share among America’s top trade partners.  By comparison, China's exports to America represent 2.5% of its GDP, and Japan's 3.7%.  Therefore, the regional economies are uniquely exposed to the potential U.S. tariffs.

ASEAN governments could face a difficult balancing act as they attempt to manage growing regional commerce and pressure from Washington to decouple from China.  This would prove to be a major challenge for a region whose success has been driven by greater integration into global value chains and successful collaboration with the world’s two largest economies.  It will deliver a massive blow to mainland exporters leaving them with far fewer trade alternatives.  American corporations will also feel the pain, putting their years of planning and investments at risk. 

ASEAN lacks the heft to meaningfully retaliate against any U.S. trade escalation.  But boosting imports and lowering tariffs on American goods in sectors like agriculture, technology and energy could help ease tensions. 

Pawns become more powerful as they go further up the chessboard.  But in this game of global trade, the longer ASEAN can remain at the center, the more they can play the whole field.  Caught in a match between two grandmasters, these players will need both offense and defense.