Could the US retreat from free trade push ASEAN to new heights?

The US retreat from its longstanding role as a champion of free trade has created new vulnerabilities for its longtime partners, particularly those from the Association of Southeast Asian Nations (ASEAN). ASEAN members face the prospect of inflation and slowing economic growth. Concern about potential dumping from China is heightening ASEAN’s sense of economic precarity.

It will take a while for the new global economic order to emerge with clarity, but there may be a silver lining for ASEAN. At the international level, we have not seen trade wars and de-globalization, as initially feared. Instead, the international community (ASEAN included) has emphasized the importance of a rules-based international order, including for trade. Re-globalization is already occurring through the forging of new economic relations and free trade agreements (FTAs), such as the Future of Investment and Trade Partnership comprising smaller powers and the EU-Indonesia FTA. At the regional level, there is substantial interest in the ASEAN free trade area, with businesses tapping the market potential and sourcing goods locally for geopolitical resilience.

We have not seen trade wars and de-globalization, as initially feared.

For trade- and investment-reliant ASEAN states, this is both welcome and necessary. The ASEAN region with 672 million people, a US$3.6 trillion economy, and a digital sector projected to reach US$1 trillion by 2030 is well-positioned to enhance its standing in the new global economic order — if the public and private sectors move decisively at this critical juncture.

Encouragingly, the tariff-besieged landscape has accelerated efforts toward ASEAN’s foremost economic goal, to entrench its single market and production base in global value chains, as avowed in the 2007 ASEAN Charter. The group is following a three-part strategy: (1) accelerating intra-ASEAN integration and producing for its own consumption (not just for export), (2) enhancing rules-based external economic relations to diversify trade exposure, and (3) mobilizing the private sector’s use of ASEAN economic agreements. While extremely challenging, this strategy may be the only way for ASEAN to become the world’s fourth largest economy by 2045.

Accelerating Intra-ASEAN Integration: Six Key Instruments

While the ASEAN free trade area is virtually tariff-free (98.6 percent) for goods with at least 40 percent ASEAN-originating value, doubling intra-ASEAN trade from its current, stagnant 20–22 percent to the desired 40 percent requires dismantling non-tariff barriers inherent in complex regulatory, customs, and certification requirements. The upgraded ASEAN Trade in Goods Agreement that is being signed at the 47th ASEAN Summit this month is expected to substantially address this, while also expanding opportunities in digital trade, sustainability, and inclusivity for micro, small, and medium-sized enterprises (MSMEs).

Doubling intra-ASEAN trade from its current, stagnant 20–22 percent to the desired 40 percent requires dismantling non-tariff barriers.

Complementarily, the ASEAN Framework Agreement on Services and the ASEAN Comprehensive Investment Agreement support labor mobility and capital flow. Crucially, the forthcoming ASEAN Digital Economy Framework Agreement, ASEAN Connectivity Strategic Plan (ACSP) 2026–2035, and ASEAN Power Grid (APG) program articulate rules for seamless digital, physical, and energy connectivity needed to support large multinational businesses and MSMEs operating in ASEAN’s single market and production base.

Enhancing External Economic Ties

With seven FTAs across the Asia-Pacific, including the Regional Comprehensive Economic Partnership (RCEP) situating ASEAN at the center of the world’s largest trading zone, ASEAN’s rules-based relationships position it well in shifting global value chains. Here, ASEAN has advanced relations with key partners. The upgraded ASEAN-Australia-New Zealand FTA (in force since April 2025) and the recently-completed third upgrade of the China-ASEAN FTA incorporate forward-looking provisions on digital economy, supply chain resilience, sustainability, and private sector opportunities.

Besides upgrading its FTA with South Korea, and working to upgrade its FTAs with and India and Japan, ASEAN also has stepped up momentum towards an ASEAN-European Union FTA. Indonesia, Singapore, and Vietnam all have bilateral agreements with the EU, while EU negotiations withThailand, the Philippines and Malaysia are expected to conclude in 2026. Concurrently, exploratory discussions with the Gulf Cooperation Council, Brazil, and South Africa indicate ASEAN’s intention to diversify beyond traditional partners.

Business-Friendly Implementation of ASEAN FTAs

However, ASEAN’s strategy hinges entirely on whether its FTAs can translate into tangible, user-friendly business advantages. Businesses – not countries – are the real traders. The utilization rate of ASEAN FTAs is an underwhelming 50 percent. Under use is most pronounced among the millions of MSMEs, which comprise over 97 percent of ASEAN’s private sector.

The reasons are familiar: lack of FTA awareness, burdensome rules of origin and compliance requirements, and lack of clarity arising from overlapping FTAs. For multinationals with legal and trade advisories and large trade volumes, navigating rules of origin and certification processes is worthwhile. For a family-run manufacturer or other small business with limited administrative capacity, paying a slightly higher most favored nation tariff is less troublesome than doing the paperwork and calculations required by preferential regimes.

Nevertheless, the cost-benefit analysis is changing in response to the geo-economic landscape. Businesses understand that product quality alone is insufficient to compete in intra-regional or external markets. They must know their product components’ origins and tariff schedule classification, manufacturing processes, and which FTA to use for shaving costs at the border and greater market access. For example, a Nomura study found that Singapore exporters to the US are absorbing around 20 percent of the increased costs while other ASEAN-based exporters are passing the costs on to the importer. With export volumes to the US decreasing and floods of Chinese goods looming, ASEAN FTAs offer companies rules-based, multilateral trade and investment pathways to manage supply chain shifts and enter new markets competitively.

To help the private sector use ASEAN FTAs more fully, regional policymakers are simplifying compliance procedures, harmonizing standards, and expanding outreach.

To help the private sector use ASEAN FTAs more fully, regional policymakers are simplifying compliance procedures, harmonizing standards, and expanding outreach, especially to MSMEs. There are two key improvements: the ASEAN Single Window (ASW) connects national customs systems for the digital exchange of trade data to expedite customs clearance; and the ASEAN Tariff Finder provides easy-to-use data on duties and import regulations, thus enabling companies to identify the most suitable FTAs for their products.

Also underway are enhancements to the ASW’s interoperability with dialogue partners’ trade platforms and ASEAN’s Quick Wins mechanism that promises ASEAN responsiveness to private sector feedback. Nonetheless, many more non-tariff barriers must be dismantled to improve mutual recognition of professional qualifications, harmonize regulatory frameworks, and provide clarity on tax regimes, business policies, and foreign equity and ownership rules to increase business usage of ASEAN FTAs.

In turn, businesses – particularly their strategic, legal, and trade advisors – must realize that whether trading in goods or services, or looking to invest, the key is knowledge and agility in this highly-tariffed, volatile geo-economic environment. Besides knowing business operations in greater detail (for example, the manufacturing process, component sourcing, and supply chains), they should learn about the tariff schedules, rules of origin, and digital provisions embedded in ASEAN FTAs to use them more frequently and effectively. ASEAN trade and commerce associations are already facilitating this learning. Businesses must also be prepared to play a “longer game,” as ASEAN’s purchasing power does not match that of developed economies like the US and will need time to build up.

In conclusion, as the new rules-based global economic order realigns, ASEAN states and its private sector should ensure that ASEAN FTAs are used more intensively. Their terms are not just advantageous, but essential to economic development and business resilience. Only by doing so can ASEAN fulfill its 2045 vision of a resilient single market and production base with the world’s fourth-largest economy and intra-regional trade of 40 percent. If this opportunity is missed, ASEAN risks remaining a bystander rather than becoming a significant player in the future rules-based economic order.

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Tan Hsien-Li is an associate professor of law at the National University of Singapore, co-head of the ASEAN Law and Policy Programme at the Centre for International Law, and co-editor of the Asian Journal of International Law.

Suggested Citation:
Tan Hsien-Li, “Doubling Down on Rules-Based Trade,” USALI Perspectives, 6, No. 2 , October 17, 2025, https://usali.org/usali-perspectives-blog/doubling-down-on-rules-based-trade.

The views expressed in USALI Perspectives are those of the authors, and do not represent those of USALI or NYU.

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