How Asean-India trade deal can be a game changer amid Trumpian disruption

Over the years, the Association of Southeast Asian Nations (Asean) has matured into a central regional bloc, shaping economic growth and stability in Southeast Asia. The new reciprocal tariffs imposed by the United States are set to dent Asean’s exports to the US, potentially pushing global export growth negatively. This makes it imperative for Asean to either diversify into fresh markets or deepen engagement with existing partners to offset these losses.

The US Reciprocal Tariff Shock

The US has a strong and growing trade relationship with Asean, the fourth-largest trading partner for the US, governed by the 2006 Trade and Investment Framework Arrangement. US trade in goods and services with Asean reached an estimated $571.7 billion in 2024, a 13.4 per cent increase ($67.6 billion) from 2023.

Total goods trade amounted to $475.6 billion. US goods exports rose 15.3 per cent ($16.4 billion) to $123.5 billion, while imports grew 13.3 per cent ($41.4 billion) to $352.1 billion. This resulted in a goods trade deficit of $228.5 billion, up 12.3 per cent ($25.0 billion) from 2023. Total services trade was $96.1 billion. US services exports increased 7.4 per cent ($4.2 billion) to $61.0 billion, while imports climbed 19.1 per cent ($5.6 billion) to $35.1 billion. The US maintained a services trade surplus of $26.0 billion, though this was down 5.1 per cent ($1.4 billion) compared to 2023.

Trump’s administration has extended reciprocal tariffs to Asean members, as part of its campaign to narrow trade deficits. These measures, first announced in April and then revised through separate communications, are substantial:

· Cambodia: 49 per cent, revised to 36 per cent*

· Laos: 48 per cent, revised to 40 per cent*

· Vietnam: 46 per cent, cut to 20 per cent under a bilateral agreement

· Myanmar: 44 per cent, revised to 40 per cent*

· Thailand: 36 per cent (unchanged)

· Indonesia: 32 per cent, cut to 19 per cent under a bilateral agreement

· Malaysia: 24 per cent, revised to 25 per cent*

· Brunei: 24 per cent, revised to 25 per cent*

· Philippines: 17 per cent, revised to 20 per cent*

· Singapore: 10 per cent (baseline)

(*revised from August 1, 2025)

Asean member states are concerned not only with reciprocal tariffs but also with potential US actions under Section 232 of the Trade Expansion Act, which allows the president to impose or raise tariffs on national security grounds. Sector-specific tariffs, particularly on automotives and auto parts, semiconductors, and pharmaceuticals, could have a significant impact on several Asean economies. Domestic markets face risks from both the weakening of global demand and the diversion of Chinese goods away from the US toward alternative markets in the region.

Politically, the Asean responded to the Trump administration’s tariffs by issuing statements at the Special Meeting of Asean Economic Ministers (April 2025) and the 46th Asean Summit (May 2025). While these declarations underscored regional unity, they provided limited clarity on concrete collective measures beyond existing initiatives, such as the upgrading of the Asean Trade in Goods Agreement and ongoing negotiations on the Asean Digital Economy Framework Agreement.

Meanwhile, several Asean member states pursued parallel bilateral negotiations with Washington. Vietnam, Indonesia, and the Philippines concluded trade deals just days before reciprocal tariffs were set to take effect on August 1, 2025. These agreements included commitments to expand market access for US exports, purchase designated US goods, address non-tariff barriers and trans-shipment issues, and enhance cooperation on broader aspects of economic security.

A SMART model simulation using the World Integrated Trade Solution (WITS) platform of the World Bank shows China as the most severely impacted, with projected export losses of $53.36 billion. Asean, on the other hand, benefits from trade diversion, gaining market share as buyers shift away from China, although these gains come from reallocation rather than expansion of global demand. The exercise underlines Asean’s ability to capitalise on supply chain flexibility and open trade regimes.

However, Asean’s deep import dependence on China, including inputs for its export sectors, could still limit these advantages. Higher Chinese costs will filter into Asean exports, especially if these too face tariffs. This makes market diversification beyond China urgent. The US also targets Asean countries, which it sees as conduits for Chinese-led exports.

Strategic Pathways Forward

1. Deepening intra-Asean trade

By harmonising regulations, lowering intra-regional tariffs, and liberalising services trade, Asean can strengthen its internal market and cushion against external tariff shocks.

2. Leveraging collective bargaining

Negotiating with the US as a bloc would enhance Asean’s negotiating strength and help secure more favourable trade terms than piecemeal bilateral deals.

3. Engaging strategically with China

With both the US and China imposing higher tariffs on each other, Asean can expand exports to China in sectors where the US will lose market share, benefiting from existing duty-free arrangements under Asean-China Free Trade Agreement (FTA).

4. Market diversification

Asean should scale up engagement with partners such as New Zealand, Australia, the Republic of Korea, Japan, the EU, Mercosur, and Central Asia. Notably, India has emerged as an important asset in the current phase, a fast-growing market with strong complementarities in goods and services, and an existing Asean-India FTA that can be further deepened. India’s rising import demand, coupled with its strategic push for diversified sourcing, positions it as a reliable long-term partner for Asean exporters.

5. Expanding services trade

By harmonising regulations and negotiating deeper services commitments with partners, including India, China, Japan, Australia, New Zealand, and Korea, Asean can tap new growth areas and boost competitiveness.

6. Building digital and resilient supply chains

Investing in Asean-based production hubs and value-added manufacturing can reduce over-reliance on China and the US while enhancing the region’s capacity to absorb shocks.

Conclusion

The US reciprocal tariffs, though aimed broadly, have altered the global trade map. Asean’s ability to adapt will depend on its readiness to strengthen intra-regional links, negotiate as a bloc, and diversify markets. While China remains a major partner, Asean must proactively cultivate other relationships, and here, trade with India stands out as a strategic advantage. With a robust FTA framework under review, growing complementarities, and India’s own pivot toward resilient supply chains, Asean-India trade offers both a buffer against current disruptions and a pathway to sustained growth in the next phase of regional integration. This idea needs to be grasped firmly and not allowed to wither away.

The writer is a former ambassador to Germany, Indonesia, Ethiopia, Asean, and the African Union, and the author of ‘The Mango Flavour: India & Asean After 10 Years of the AEP’. The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect the views of Firstpost.