SLAPPED WITH TARIFFS by the US, the Association of Southeast Asian Nations (ASEAN), with all its 11 members affected, is now more important than ever. As the world comes to terms with the US import taxation, ASEAN countries have to digest that they are among those facing the highest quantum of tariffs—Cambodia being the world’s highest with a 49% levy on exports into the globe’s biggest economy. Malaysia is among those affected by the tariffs; since 5 April, every Malaysian product shipped to the US is stamped with at least a 10% duty; and from 9 April, a 24% rate, with some exemptions.

For now, the country will embark on a range of diplomatic missions by first cajoling ASEAN to, in unison, urge the US to reconsider the quantum of tariffs imposed. As a single market entity, ASEAN is a significant economic force, with a combined GDP of USD 3.8tril and a population breaching 700 million—the world’s third most populous region. The country then would also seek its partners in Free Trade Agreements and other regional blocs such as the European Union (EU), to offer alternative options to the US, in the hope that such tariffs can reduce or reverse its trade deficits with the world.

However, Prime Minister Anwar Ibrahim has lamented that the US tariffs are discriminatory and contrary to the World Trade Organisation’s (WTO) principles. He warned of long-term challenges for key Malaysian industries including textiles, rubber and plastics. The semiconductor industries, wherein Malaysia (and Penang) is a key global player, may, at this juncture, appear spared from the new tariffs at the moment. He added that Malaysia’s macroeconomic fundamentals were well supported by its robust household spending, strong domestic investment, healthy tourism receipts and the continued implementation of national masterplans.

Anwar disputes the US 47% tariff on imports from Malaysia, and will engage constructively with the US to protect market access and investor confidence, pointing out that the basis for calculating this tariff by the US was fundamentally flawed. The Investment, Trade and Industries Minister, Tengku Zafrul Tengku Abdul Aziz clarified that the actual average tariff stands at about 5.6%, based on the simple average most favoured nation (MFN) applied rate.

He highlighted that the US’ latest tariff policy is expected to have a direct impact on the GDP, presenting challenges to economic growth for this year and more years to come. As one of the largest trading partners of the US in ASEAN, as well as a major destination for foreign investments from the US, Malaysia is likely to feel the impact of these tariffs in the medium to long term, he added.

ASEAN-BAC In The Limelight

Following this, the private sector may have to take the lead by placing importance on economic power rather than the decades old wrangle of sovereignty, security and bureaucracy. The ASEAN Economic Community (AEC), formed in 2015, is the final objective, but it is often railroaded due to the topsy-turvy nature of global trade, and now—the tariffs.

If realised, AEC may be somewhat a replica of the EU free movement of capital and people, meant to attract foreign direct investments (FDI).

As a roadway toward AEC, ASEAN has formed a Business Advisory Council (BAC)—now chaired by banker, Nazir Razak in view of the fact that Malaysia is the regional chair for this year and by BAC’s executive director, Penang-born Jukhee Hong.

Both have advocated that ASEAN’s integration can be driven by a rejuvenated private sector, hence their renewed call for an ASEAN Business Entity (ABE) to propel faster exchanges of labour, capital and immigration requirements. He said that since the failure to realise the AEC concept in 2015, the private sector in the region has now come up with a realistic alternative, which is the ASEAN-ABE. ASEAN-ABE will enable each company to be recognised and certified by their respective nations as an ASEAN-level corporate, business or commercial entity. Through ASEAN-ABE, companies can move staff easily throughout the region without working visas, and outsourcing of work can be coordinated among companies.

“We also have initiatives to further digital trade within ASEAN, improve sustainability and inclusion, as well as collaborate in artificial intelligence.”

ASEAN-BAC wants to catalyse mergers, investments and partnerships in the future. These priorities would define Malaysia’s chairmanship agenda.

“I am eager to see where this takes us, but I am under no illusion about the difficulties of getting ASEAN stake holders to agree, especially when major changes require unanimous agreement by all governments. But as the saying goes, ‘If you don’t take a shot, you won’t score a goal’,” said Nazri.

Digital Transformation

Malaysia, Thailand, Indonesia, Singapore and especially the Philippines, have a pool of skilled computer programmers, and it does not come as a surprise that ASEAN is the fastest-growing Internet market in the world.  With 125,000 new users reportedly using the Internet every day, the ASEAN digital economy is projected to grow significantly, adding an estimated USD1tril to regional GDP over the next 10 years.

Another seamless drive is the digitalisation market, which is easy as it mostly involves moving data, not people. Nazir spoke of growing the digital economy within the region—what with data centres mushrooming—including those peddling in cryptocurrency.

ASEAN has laid out important policy measures and frameworks, including the AEC Blueprint 2025, Masterplan on ASEAN Connectivity 2025 and the e-ASEAN Framework Agreement, to address these roadblocks. The framework can potentially transform the region—and with the US-bound tariffs weighing down every trading nation in the world, there is great urgency for this to happen.

Working Together

“Our trade is built on a diversified network of regional and global partnerships consolidated over many years—including through ASEAN, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), and ongoing negotiations with the European Union (EU) and deepening ties across the Global South,” Anwar said.

The National Water Services Commission (SPAN) chairperson and economist by training, Charles Santiago described the move as weaponizing trade and a step away from decades of free trade liberalisation and globalisation, which was initially championed by the US themselves. “It is part of a broader trend where tariffs are no longer mere trade tools but geopolitical weapons. By unilaterally escalating tariffs, powerful economies like the US force trading partners into a defensive stance, compelling them to negotiate for exemptions under terms that often extend beyond commerce,” adding that this strategy does not just recalibrate trade balances; it reshapes alliances, supply chains, and even domestic policies in weaker economies.

Former senator Yusmadi Yusoff said that if regional blocs such as Africa Union, the EU and the Community of Latin American and Caribbean nations spoke with one voice, perhaps the US would come up with an alternative formula.

Another avenue is for ASEAN nations to drive up intra-trade and cross border activities together with more direct investment flows among the 11-member nations. But this is easier said than done. Hence, ASEAN is often accompanied by a formula of either ASEAN plus one, two, three or four; other than Singapore and soon Indonesia, the other eight members are relatively still in the bracket of developing nations. Cambodia and East Timor rank among the globe’s poorest nations.