2025-04-08 11:09:50 by Finextra

The disruption caused by tariffs on trade with the United States threatens to adversely impact Southeast Asian economies, particularly the regional juggernaut, China. However, early indications suggest that these challenges are being met with a strong degree of resilience. It seems as though the uncertainty caused by President Donald Trump’s tariffs in the United States was the last thing that Southeast Asia needed as its largest economy, China, unveiled an ambitious stimulus plan to help the nation recover from its long-standing fiscal shortfalls.  As a whole, the fourth quarter of 2024 painted a resilient picture of Southeast Asia, with most economies enjoying 5% growth or more despite an unpredictable year ahead.  Vietnam had the strongest end to 2024, posting 7.55% growth, while Thailand saw growth rise to 3.2% after previously reporting -5% growth, marking the largest year-on-year quarterly growth over the past five years.  Despite these signs of strength, regional currencies weakened against the US dollar due to expectations of an extended high-interest climate in the United States.  While the outlook for the year ahead remains more challenging, Asian Economic Outlook and Integration Progress Annual Report 2025 figures anticipate 4.5% growth throughout the region’s economies.  Much of this growth will be driven by economies like China, India, Vietnam, the Philippines, Mongolia, Cambodia, and Indonesia, all of which will maintain rates above 5%.  Given that China is responsible for nearly half of the entire of Asia’s $40 trillion economy, much of the region’s resilience in 2025 will stem from the nation’s managing of trade tariffs and stimulus plan.  Navigating Uncertainty The challenges posed by the introduction of an additional 10% tariff on China are likely to weigh heavily on its economy over the coming months.  China has leaned heavily on exports to make up for weak demand domestically, with autos, electric vehicles, and batteries remaining a priority. However, 27.5% tariffs on auto exports and 102.5% duties on EVs have effectively priced US markets out of importing vehicles from the world’s second-largest economy.  When Trump introduced higher tariffs during his first term in the White House, it prompted leader Xi Jinping to accelerate the shift to high-tech production to mitigate the higher costs involved in selling to the United States. However, resuming this shift towards automation could risk harming China’s weaker jobs market further.  Mindful of the necessity of encouraging consumer spending, China’s government recently announced plans to “vigorously boost consumption” by improving salaries and lowering financial burdens in a bid to increase consumer confidence and improve its economy.  As part of its strategy, the Chinese Communist Party (CCP) intends to improve the mechanisms for adjusting the minimum wage while bringing in added subsidies for childcare and boosting the earnings potential of homeowners.  China has identified artificial intelligence innovation as a key component of its economic growth in 2025 and beyond, and the nation intends to become a tech superpower by 2030.  With more than 4,500 firms developing and selling AI domestically, schools in Beijing have already begun incorporating artificial intelligence into their curriculum to train the tech professionals of the future.  This ambitious plan is part of China’s strategy to future-proof its economy despite challenges emerging from the West. With innovations throughout the region helping to narrow worker skill gaps, we can see plenty of signs of economic resilience in Southeast Asia on the horizon.  Regional Upskilling China’s bid to include technological innovations like artificial intelligence in the school curriculum is an essential means of preparing the next generation of workers for a seamless transition into the world of work in the 21st Century. However, there’s evidence of widespread upskilling throughout the Southeast Asian region.  Recently, the Philippines sought to address growing skill gaps throughout sectors by building comprehensive skills-mapping programs focused on guiding training efforts to improve the domestic pool of talent within the nation’s workforce.  The Department of Labor and Employment (DOLE) has prioritized digital skills, healthcare, green jobs, and STEM competencies as part of its targeted upskilling programs. Thanks to the rise of the gig economy and remote work, these initiatives could have positive repercussions at a regional level.  Around 25% of China’s workforce is comprised of gig workers, and regional upskilling could pave the way for a greater talent pool of staff available to steer the nation’s bid to become a tech powerhouse in the coming years.  Tariffs Could Boost Smaller Economies With US tariffs focusing on China, we’re likely to see more economic resilience from emerging market economies throughout the rest of Southeast Asia as a result of their lower-cost supply chain credentials.  Nations like Vietnam, for instance, can benefit from disrupted global supply chains and recapture some of the growth seen throughout Trump’s first term as President. For example, between 2017 and 2023, the nation increased its export share to the United States in all product categories, boosting its emerging economy exponentially.  While this growth is a testament to Vietnam’s productivity in recent years, it was accelerated by China's opting to reroute its exports as Vietnamese goods.  With the prospect of international trade wars emerging from reciprocal tariffs throughout impacted trading partners, we may see more smaller economies benefit from becoming a low-cost alternative for international trade.  Securing Growth in 2025 The year ahead is set to be a turbulent one for Southeast Asian economies, but we can already see signs of resilience as nations seek to improve stimulus to support a more tech-focused infrastructure for the region over the coming years.  The coming weeks will provide a clearer picture of the full impact of tariffs and how they could impact the region as a whole. But with a commitment to out-innovating the challenges it faces, there can be plenty of optimism ahead for Southeast Asia in 2025.  While a widespread emphasis on upskilling can help to support China’s bid to become a tech leader coming to fruition remains to be seen, there’s plenty of reason to believe that the future’s bright for Asia at a time when uncertainty is still clouding many global economies.