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Genevieve Donnellon-May

Amid escalating tensions between the United States and China and lingering trade tensions, China and Asean have gone full steam ahead on upgrading their landmark free trade pact.
China and the Association of Southeast Asian Nations – two key players in the Global South – account for a quarter of the world’s population and a fifth of global gross domestic product, contributing to over 30 per cent of global economic growth.
In July, Chinese Foreign Minister Wang Yi announced that both sides would submit the “3.0 version” of the China-Asean Free Trade Agreement for approval in October. This signals a push to future-proof Asia’s trade flows amid renewed US protectionism and intensifying global competition. With negotiations over, the pact is expected to be signed by the end of 2025.
The initial version of the free trade pact was Asean’s first with an external partner. The latest upgrade is set to expand cooperation across nine areas, such as digital and green economies.
Since the agreement’s inception in 2010, Asean’s trade with China has almost tripled – from US$235.5 billion in 2010 to US$696.7 billion in 2023. China has been the bloc’s largest trading partner for 16 consecutive years. Asean has also become China’s top trading partner for the past five years. Last year, bilateral trade almost reached US$1 trillion. In the first four months of 2025, trade reached US$330.86 billion, a 9.2 per cent year-on-year jump.
Upgrading the pact benefits both sides. It gives Asean countries a chance to deepen regional integration and reinforce supply chains amid rising geopolitical uncertainty. A 2023 HSBC survey found that 92 per cent of Indonesian, 87 per cent of Filipino and 89 per cent of Vietnamese companies expect supply chain growth with China through 2026.

For Beijing, Southeast Asia is indispensable. The upgraded deal could help China diversify export markets, secure vital raw materials – such as minerals from Indonesia and Thailand – and encourage manufacturers to offshore production to lower costs and bypass Western restrictions. This consolidates China’s position as a stable regional economic partner for Asean while counterbalancing US influence and boosting intra-Asian trade.
For the US, the upgraded agreement reveals the limits of its tariff offensive. US tariffs are prompting more countries to boost economic ties with China, which is increasingly seen as a steadier source of investment, capital and financing.
Indonesia reportedly secured a tariff cut from 32 to 19 per cent. Cambodia had faced a 36 per cent rate, which was also reduced to 19 per cent. However, US President Donald Trump’s tariffs threaten Southeast Asia unevenly, ranging from 10 per cent on Singapore to 40 per cent on war-stricken Myanmar and Laos.
A shift in public opinion is also under way. The 2024 ISEAS-Yusof Ishak Institute survey, a barometer of regional elite opinion, found that most respondents would pick China over the US if they had to choose. As Washington steps back from multilateralism, Beijing is positioning itself as the defender of world trade norms, challenging Western dominance.




However, major hurdles remain. Asean and China must navigate complex regulations on logistics, warehousing and product certification. This demands major infrastructure investment, harmonised data governance and stronger cybersecurity cooperation, efforts that hinge on institutional trust, coordinated reforms and sustained policy support.
Equally pressing is the shifting trade balance. Asean accounted for 15 per cent of China’s trade in 2023, up from 10 per cent in 2010, according to McKinsey, while China made up 20 per cent of Asean’s trade in 2023, a 12 per cent increase over the same time period. Asean imports from China have surged faster than exports, pushing the bloc’s trade deficit above US$190 billion. The updated agreement could deepen these imbalances.
The relocation of Chinese manufacturers to Southeast Asia is another concern. Facing US technology restrictions, Chinese firms have shifted production to Asean countries to bypass tariffs and avoid the “Made in China” label.
While some countries like Vietnam and Thailand stand to gain from this, despite recent obstacles, a surge of cheaper Chinese imports could also threaten less competitive local producers and further widen trade deficits.

Moreover, long-standing South China Sea disputes continue to fuel unease. Past Chinese restrictions on Filipino banana exports show how maritime disputes can affect trade ties.
Beijing’s renewed commitment to finalising a code of conduct for the South China Sea with Asean brings optimism. Still, overlapping claims and periodic flare-ups could sour goodwill. Disputes must be carefully managed to avoid eroding trust.
Overall, the upgraded trade deal offers opportunities for both China and Asean. If both sides manage risks, the pact will accelerate Southeast Asia’s rise and solidify China’s place at the centre of it.


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Asean

As Trump builds tariff walls, China and Asean are building bridges

An employee works at a textile factory in Binzhou in Shandong province on May 14. Photo: AFP

A worker looks at containers being loaded onto transport trucks in Jakarta, Indonesia, on July 9. Photo: EPA 

A worker checks input materials for plastic production at a factory in Haiphong, Vietnam, on July 28. Photo: AFP

US ‘lone wolf’ diplomacy helps China win Asean hearts and minds

Illustration: Stephen Case

How Southeast Asia haggled with erratic US economic might

US President Donald Trump holds up a “reciprocal” tariff chart while speaking at the White House on “Liberation Day” earlier this year. Photo: Getty Images/TNS

Containers are seen piled up in a cargo terminal at Bangkok Port, Thailand, on Wednesday. Photo: AP

Vendors sell their wares in Vientiane. Landlocked Laos, a country of only 8 million, has been hit with a 40 per cent tariff by the US. Photo: AFP 

Cambodians wave national flags as they take part in a peace march in Phnom Penh on August 2, following five days of border clashes with Thailand that killed at least 43 people on both sides. Photo: AFP/Getty Images/TNS

A Thai Airways Boeing 747 parked at an airport terminal. Thailand has pledged to buy more of the American passenger planes. Photo: Shutterstock

Myanmar junta chief Min Aung Hlaing is seen on a screen during during a military parade in Naypyitaw marking the country’s 80th Armed Forces Day in March. Photo: AP

US President Donald Trump holds up his “reciprocal” tariff chart while speaking at the White House on April 2, which he branded “Liberation Day”. Photo: Getty Images/TNS

China’s ‘durian diplomacy’ expands with Cambodia’s first direct air shipments of fruit

A local vendor prepares his morning store for selling durian fruits at a sidewalk in Chhuk Var village outside Phnom Penh, Cambodia, on July 22. Photo: AP 

Asean-GCC economic axis: the Global South’s answer to US volatility?

Asean and Gulf officials join hands for a group photo at the second Asean-GCC Summit in Kuala Lumpur on May 27. Photo: AFP

Malaysia’s Prime Minister Anwar Ibrahim (left), also this year’s Asean chair, greets Sheikh Saud bin Saqr al-Qasimi of the UAE in Kuala Lumpur on May 27. Photo: AFP

Engineers work at an oil refinery in Saudi Arabia. The Gulf’s vast energy reserves complement Southeast Asia’s advanced industrial base, analysts say. Photo: Armaco / AFP

Riyadh, capital of Saudi Arabia. Islamic finance and halal industries are just two of the sectors that both the GCC and Asean prioritise. Photo: Shutterstock

Indonesian President Prabowo Subianto (centre) performs the Umrah pilgrimage in Mecca on July 2 during his three-day visit to Saudi Arabia. Photo: Indonesian Presidential Palace / AFP

A Vinfast electric car is seen parked outside a showroom in Hanoi. Photo: AFP

Opinion

China Opinion

Asia Opinion

News

World

Asia

Diplomacy

Southeast Asia

China

Economy

Global Economy

Policy

Despite obstacles to enhancing mutual trust, revamping trade ties offers opportunities for both parties amid intensifying global competition


Despite obstacles to enhancing mutual trust, revamping trade ties offers opportunities for both parties amid intensifying global competition.


China-Asean relations

US-Asean relations

China trade

Trade

US-ally trade wars

US-China trade war

China tariffs

Vietnam

Laos

Myanmar

Thailand

Indonesia

The Philippines

Singapore

Donald Trump

South China Sea

Infrastructure

Wang Yi

Global South

Cambodia

United States

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


As Trump builds tariff walls, China and Asean are building bridges

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Despite obstacles to enhancing mutual trust, revamping trade ties offers opportunities for both parties amid intensifying global competition

Despite obstacles to enhancing mutual trust, revamping trade ties offers opportunities for both parties amid intensifying global competition