ASEAN Caught Between China’s Export Surge and Global De-Risking
Picture: Asia Society Policy Institute
In an article by the Asia Society Policy Institute, Brendan Kelly and Shay Webster discuss the growing economic challenges faced by ASEAN due to China’s industrial overcapacity, which is displacing local industries, increasing trade deficits, and putting ASEAN at the center of global trade tensions, while also highlighting the need for ASEAN to strengthen trade tools, diversify supply chains, and enhance regional coordination to navigate these pressures.
ASEAN, long a beneficiary of China’s rapid growth and global supply chain integration, now faces mounting pressures as Chinese industrial overcapacity spills into the region. ASEAN has thus far largely stayed out of growing global trade tensions around China’s industrial policies, much as it did during earlier U.S.-China trade disputes, while benefiting from investment and trade from all sides and deeper integration into Chinese supply chains that support growing exports to global markets.
However, ASEAN faces increasing pressures from four key trends, each of which is accelerating, pointing to a more challenging time ahead for ASEAN policymakers and businesses. These developments are increasingly putting ASEAN in the middle of economic challenges and global reactions to China and its industrial overcapacity.
China’s exports to ASEAN are growing rapidly, exceeding its exports to the United States and the European Union (EU) since 2023, and up a further 12% in 2024. While most of this growth has been in intermediate goods, supporting ASEAN’s own exports to advanced economies, increasingly it is also in final goods, displacing local industry and jobs. Meanwhile, ASEAN exports to China have declined 3% since 2022, contributing to growing trade deficits and incipient trade tensions.
China’s industrial overcapacity, in lower-end as well as advanced manufacturing sectors—manifesting in surging volumes of artificially low-priced Chinese exports—is displacing ASEAN exports to third markets, threatening the region’s broader industrial health and development.
ASEAN is increasingly becoming the key offshore manufacturing base for Chinese companies, particularly in the clean energy sector. While this investment can support the region’s energy transition and enhance global competitiveness in these important technologies, these products are at the center of overcapacity tensions with China, threatening to put ASEAN in the crosshairs of global trade responses.
While ASEAN has benefited from integration into Chinese supply chains, the United States, the EU, and other economies, including Japan and India, are intensifying their scrutiny of exports from Chinese companies operating in or processed through third countries.
ASEAN governments now face a double balancing act: managing growing economic integration with China while contending with mounting pressure from advanced economies to reduce reliance on Chinese supply chains. At the same time, ASEAN must balance leveraging Chinese cheap imports and growing investments to drive industrial growth against the risk of these inputs overwhelming domestic industries and limiting their own industrial development. These tensions ASEAN faces are already building and are likely to be sharpened and accelerated under new Trump administration tariffs and China’s decoupling efforts. These evolving tensions also cast doubt on the extent to which China can meaningfully shift exports to ASEAN and other emerging markets as it faces growing trade restrictions from the United States and the EU.
To address these challenges, ASEAN must prioritize strengthening trade tools and enhancing regional coordination to manage import surges, while continuing to invest in its own competitiveness. Diversifying its supply chains from increasing reliance on China will be critical to reducing vulnerabilities. Leveraging institutional frameworks under the ASEAN-China Free Trade Agreement (ACFTA) and the Regional and Comprehensive Economic Partnership (RCEP) can help ASEAN navigate external pressures while safeguarding its industrial growth. At the same time, the U.S. and other major economies should proactively engage ASEAN on their overcapacity and de-risking concerns related to China, to help ASEAN remain a key partner in their own supply chain diversification efforts.
