Caught between China’s export flood and global de-risking: ASEAN’s rebalancing moment

A Trade Relationship Being Repriced

In 2023, ASEAN officially overtook the United States and the European Union to become China’s largest export market. Over the past decade or so, this status has been widely regarded as a symbol of regional dividends—China’s share of ASEAN’s total trade rose from 12% in 2010 to 20% in 2023, while ASEAN, over the same period, raised its own exports to nearly 8% of the global total.

But behind the same set of data, an increasingly steep divergence is emerging: in 2024, China’s exports to ASEAN grew by another 12%, while ASEAN’s exports to China grew by only 2%. In Indonesia and Thailand, this imbalance is even more pronounced—the two countries’ imports from China rose by nearly 18% and 14%, respectively, while their exports to China fell by 4% and 5%. ASEAN’s overall trade deficit with China has widened to more than $190 billion.

This is not a cyclical trade fluctuation. Research by the Asia Society Policy Institute points out that China’s industrial overcapacity is becoming a core issue on the global trade agenda, and ASEAN, as one of the emerging-market groups most deeply integrated with China’s economy, happens to sit at the epicenter of this round of shocks.

A Deficit Is Not a Net Loss, but the Structure Is Changing in Nature

The key to understanding this round of pressure lies in distinguishing between the “total volume” and the “structure” of the trade deficit.

HSBC’s research analysis found that ASEAN’s trade deficit with China is, to a large extent, offset by ASEAN’s trade surplus with the rest of the world—especially the United States. In other words, the gains ASEAN obtains from participating in China’s supply chain integration partly depend on the continued strength of U.S. final demand. For a long time, the bulk of China’s exports to ASEAN were intermediate goods; these low-cost inputs supported ASEAN’s own export manufacturing, forming a triangular cycle of “China supplies materials, ASEAN processes them, and the West consumes.”

The problem is that, within this cycle, the structure of goods exported to ASEAN is changing. More and more Chinese exports are beginning to directly target ASEAN as an end market—if such finished goods enter at artificially depressed prices, they will directly displace local production and employment, which is entirely different in nature from processing trade that creates local jobs.

The shock first appeared in low-value goods: textiles, furniture, food and beverages. Related industries in Thailand, Indonesia and Singapore have all sent warning signals.

How the Shock First Lands in Local Industries

Indonesia’s textile industry provides an observable sample. According to Indonesian officials’ data, in 2024, 80,000 workers in the industry were laid off; in 2025, another 280,000 jobs are at risk, and 60 companies plan further layoffs. Heavily underpriced imports—a considerable share of which enter through e-commerce platforms—are squeezing the survival space of local manufacturers.

Vietnam faces a similar situation: the influx of cheap Chinese goods on cross-border e-commerce platforms is changing the competitive landscape of local retail and light manufacturing.These cases point to a common mechanism: cross-border e-commerce has sharply lowered the threshold for foreign finished goods to enter ASEAN consumer markets, so that import shocks are no longer confined to traditional trade channels but reach end consumers and small and medium-sized retailers directly. For ASEAN economies that have not yet completed industrial upgrading, this shock is arriving faster, more dispersed, and harder to address with traditional tariff tools than any previous wave.

The Global Context of Capacity Spillover

Zooming out, the pressure ASEAN faces is not an isolated phenomenon but a regional projection of the restructuring of the global industrial capacity landscape.

Data cited in the report show that China’s trade surplus in manufactured goods rose from about $1 trillion in 2018 to more than $1.8 trillion in 2023. The range of industries with overcapacity has spread from electric vehicles, solar photovoltaics, and batteries to steel, petrochemicals, semiconductors, and electrical machinery. In the EV sector, China’s capacity utilization fell sharply last year, with more than half of firms operating at a loss, while China overtook Japan in 2023 to become the world’s largest automobile exporter. Capacity for PV modules and lithium-ion batteries is expected to reach two to three times global demand in the coming years.

Responses from developed economies have already been implemented: the United States imposes 100% tariffs on Chinese EVs, 50% on solar cells, and 25% on lithium-ion batteries; the EU has imposed tariffs of up to 45% on Chinese EVs and launched anti-subsidy investigations into wind power, solar PV, electric trains, and several other industries. Meanwhile, emerging economies such as Turkey, India, and Brazil are also experiencing surges in imports of Chinese manufactured goods and have successively introduced new trade restrictions.

China’s export restrictions on key inputs such as gallium, germanium, and rare earth processing equipment have further amplified concerns about supply chain concentration.

ASEAN’s Dual-Balancing Dilemma

For ASEAN policymakers and businesses, the real challenge is not choosing sides, but simultaneously maintaining two sets of balances that pull against each other.

The first balance: between economic integration and external pressure. On the one hand, ASEAN continues to deepen its economic integration with China; on the other, it is under growing pressure from developed economies to reduce its dependence on Chinese supply chains. These two demands are not easy to meet simultaneously in practice—especially as multinational companies call for a “China+1” footprint while rules of origin and supply chain traceability reviews tighten at the same time.

The second balance: between leveraging low-cost inputs and protecting domestic industries. Cheap Chinese intermediate goods and continued inflows of Chinese investment do help ASEAN promote industrial growth; but once this same flood of imports passes a critical threshold, it could suppress the growth space of domestic industries, locking ASEAN into assembly and low-value-added segments for the long term and, conversely, limiting its own industrialization process.

These two tensions have already taken shape. The report judges that, driven by the tariff measures of the new U.S. administration and China’s own “de-risking” efforts, these tensions are likely to be further amplified and accelerated.One accompanying effect worth noting is price: as ASEAN absorbs more Chinese exports, whether intermediate goods or consumer goods, this will bring sustained disinflationary effects, helping to contain regional inflation in the short term. But this price dividend and the risk of industrial substitution are two sides of the same coin.

Another unresolved question is: as China faces increasingly tightening trade restrictions from the United States and Europe, to what extent can it substantively redirect its exports toward ASEAN and other emerging markets? The report takes a cautious stance on this—which also means that the import pressure ASEAN faces may persist for quite a long time.

How Much Room Is Left in the Institutional Toolbox

It is not that ASEAN has no tools available; the question is whether these tools are fully activated and coordinated.

The policy directions proposed by the report focus on three levels:

First, strengthen trade instruments and regional coordination mechanisms. Faced with a surge in imports, ASEAN needs more effective intra-regional coordination measures to manage the pace of shocks, rather than each country issuing scattered restrictions on its own.

Second, make full use of institutional frameworks. The China–ASEAN Free Trade Area (ACFTA) and the Regional Comprehensive Economic Partnership (RCEP) provide ready-made rules platforms, within which ASEAN can conduct more substantive negotiations on issues such as overcapacity, rules of origin, and trade remedy coordination, turning external pressure into momentum for upgrading internal rules.

Third, and most fundamentally: invest in its own competitiveness. Supply chain diversification, industrial upgrading, and human capital investment are ASEAN's long-term path to reducing vulnerability. Overreliance on inputs from a single source and on final demand from a single direction will weaken the regional economy's resilience to shocks.

The report also offers recommendations to the United States and other major economies: they should take the initiative to communicate with ASEAN on overcapacity and "de-risking" issues, rather than treating ASEAN as a policy object. If major economies want ASEAN to continue to play a key partner in their supply chain diversification, they need to understand ASEAN's real predicament of not wanting to be forced to choose sides.

The Regional Division of Labor Is Entering a Renegotiation Phase

Over the past two decades, ASEAN has gained tangible benefits from China's rise and global supply chain integration; now, the same integration mechanism is generating new costs.

This does not mean ASEAN's role is declining. On the contrary, as China, the United States, and the European Union all try to incorporate ASEAN into their respective supply chain layouts, ASEAN's bargaining leverage has objectively increased. But leverage can only be realized when there is coordination and consensus within the region—if the ten member states each respond to import shocks and each pursue bilateral arrangements on their own, ASEAN's bargaining power in the regional industrial division of labor will instead be diluted.

From a long-term perspective, the real meaning of this round of pressure may not be "whether ASEAN should decouple from China," but a more structural question: can ASEAN, while absorbing Chinese investment and intermediate goods, build sufficient local industrial depth and an intra-regional trade network, so that it transforms from a "recipient of supply chains" into an "organizer of regional production networks"?The answer to this question will determine whether ASEAN is a passive link or an active pole in the global manufacturing landscape of the next decade.