ASEAN Should leverage RCEP, FTAs To Mitigate economic Risks From US Tariffs 

By Durratul Ain Ahmad Fuad

KUALA LUMPUR, March 11 (Bernama) -- ASEAN should optimise the utilisation of the Regional Comprehensive Economic Partnership (RCEP) and the upgraded ASEAN+1 Free Trade Agreements (FTAs) to mitigate the risks of economic uncertainty following the imposition of US tariffs on Canada, Mexico and China.

The Indonesian embassy, on behalf of its foreign affairs ministry, said ASEAN must also expand trade diversification beyond traditional partners to enhance economic resilience.

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“Strengthening economic engagement with the United States through initiatives such as the ASEAN-US Trade and Investment Framework Arrangement (TIFA) and the Expanded Economic Engagement (E3) framework will be essential. By focusing on high-value sectors like semiconductors, green technology, and digital services, ASEAN can deepen its economic cooperation with the United States while fostering sustainable growth,” the embassy told Bernama. 

In addition, the embassy said that addressing inflationary pressures and climate-related risks through a green transition and mobilising green investments will be crucial to ensuring long-term economic stability and competitiveness in an increasingly uncertain global trade environment.

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US tariff impact

The embassy reckons that US tariffs could have significant implications for ASEAN economies should they be imposed on countries in the region, given ASEAN's strong ties with the United States, although higher tariffs on Chinese goods may encourage businesses to diversify their supply chains, potentially strengthening ASEAN’s role as a key trade and investment hub for the United States.

“Almost all ASEAN Member States (AMS), except Laos, count the United States among their top three export markets, and as a bloc, ASEAN contributed US$365.7 billion (US$1= RM4.42) or 11.5 per cent of total US imports last year," the embassy noted. "The projected addition of about US$640 billion to the cost of importing goods from the US' top ten import partners may create both challenges and opportunities for ASEAN.”

A recent analysis by Boston Consulting Group has estimated that based on 2023 US import levels, a 60 per cent tariff on Chinese goods, a 25 per cent tariff on Canada and Mexico, and a 20 per cent tariff on imports from other countries could add US$640 billion to the cost of US imports.

The embassy is also concerned that the United States may attempt to reduce its trade deficit with ASEAN economies, potentially limiting the gains from increased exports.  “Moreover, prolonged trade tensions introduce economic uncertainty, which could deter foreign direct investment (FDI) into the region.  Businesses facing unpredictability in trade policies may hesitate to commit long-term investments, affecting ASEAN’s economic growth and industrial development.” 

Nonetheless, it said the region's rising share in US imports underscores its competitiveness and integration into global supply chains, which could position ASEAN as a viable alternative for companies seeking to reduce reliance on China.

ASEAN Economic Community

The embassy believes that ASEAN have largely achieved an ASEAN Economic Community (AEC) as the bloc is now one of the fastest growing economies in the world. “Looking where we are right now, I think we have largely achieved our vision,” it said.

Citing information from the Asian Development Bank, the embassy said Southeast Asia’s 2024 growth outlook improved to 4.7 per cent from 4.5 per cent, driven by stronger manufacturing exports and public capital spending. It noted that this growth came amid a global slowdown projected at 3.1 per cent, showcasing the region’s resilience against economic shocks, including the COVID-19 pandemic.

“During the pandemic, ASEAN swiftly developed the ASEAN Comprehensive Recovery Framework (ACRF), guiding the region through recovery and sustaining robust economic growth,” it said.

Over the past 10 years, ASEAN has strengthened trade and investment cooperation through RCEP, the world’s largest FTA, while addressing emerging issues. The green economy, blue economy, digital economy, and creative economy are now key priorities, it said.

“Going forward, ASEAN must continue to identify global challenges to develop strategies for achieving ASEAN Vision 2045 - a resilient, innovative, dynamic, and people-centered ASEAN,” the embassy added.

Commenting on the recently concluded 31st ASEAN Economic Ministers (AEM) Retreat, the embassy said Indonesia's key priorities during the event focused on strengthening ASEAN’s economic integration, deepening trade cooperation, and advancing sustainable development in the region.

“As ASEAN centrality plays a vital role in regional economic integration, Indonesia actively promotes and upholds this principle to enhance economic resilience amidst global geopolitical tensions. Indonesia was happy that the retreat delivered tangible progress in key areas such as digital transformation, green energy transition, and infrastructure connectivity,” it said.

Additionally, the embassy said Indonesia is committed to reinforcing the implementation of the ASEAN Outlook on the Indo-Pacific (AOIP) by leveraging public-private partnerships and fostering stronger collaboration with Dialogue Partners. 

In line with Malaysia’s Priority Economic Deliverables (PEDs), the embassy said Indonesia supports the retreat’s focus on trade facilitation, investment promotion, and supply chain resilience, as well as efforts to strengthen ASEAN’s role in shaping global economic trends.

Chaired by the Investment, Trade, and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz, the 31st AEM Retreat was held in Desaru, Johor, from Feb 22- 28, 2025.

-- BERNAMA