Milestones like the Asean Free Trade Area, the Asean Economic Community, and the Regional Comprehensive Economic Partnership (RCEP) reflect steady progress toward a unified and resilient regional economy.
This vision now faces external pressure. The protectionist trade policies of the United States are undermining Asean’s integration by disrupting the supply chains essential to regional growth.
US President Donald Trump has introduced a series of aggressive tariffs.
These measures have significantly impacted Asean economies reliant on US trade. In April, the United States initiated another round of negotiations, targeting key importers including Asean.
Indonesia agreed to eliminate 99% of its tariffs on US goods, while the United States imposed a 19% tariff on Indonesian products, reduced from a proposed 40%.
However, such deals do not necessarily support Asean’s long-term development objectives.
Understanding shared prosperity: A multiplier-based investigation
Shared prosperity is not merely about boosting gross domestic product (GDP). It is about creating a distribution of value that uplifts every layer of the economy.
This is best understood through the lens of indirect effects, which refers to the ripple effects that occur throughout the supply chain when a particular sector thrives.
For instance, sectors such as agriculture, machinery manufacturing, electronics, and food production often exhibit high indirect impacts.
These sectors distribute benefits not only through direct employment but also through stimulating upstream and downstream industries.
Sectors with strong indirect effects contribute to the more equitable and efficient allocation of resources. They play a central role in building supply chains that are resilient, inclusive and regionally connected.
At the Asean level, this translates into a mutual support system where one country's strength complements another’s.
However, these linkages depend on the careful structuring of supply chains, particularly through the development of local content.
Local content refers to the domestic inputs, including labour, intermediate goods and technology that are used in production. Asean countries have absorbed a lot of foreign investment, which may encourage technology transfer through local content development.
When investments are sourced locally, the benefits are retained within the region, and technology spillovers can occur naturally through partnerships, subcontracting and shared knowledge.
Tariffs that tear apart value chains
The US tariffs under the Trump administration have targeted essential industries across Asean.
Micro, small and medium enterprises, which make up more than 90% of Asean's registered businesses and rely heavily on regional trade, are among the most affected.
In Malaysia, Indonesia and Vietnam, many of these firms are integrated into regional value chains and depend on affordable access to imported raw materials and intermediate goods.
Tariff hikes from the United States have raised input costs. These added costs reduce profit margins and limit resources available for research, development and productivity improvements.
As a result, innovation slows and Asean producers remain trapped in lower-value activities, unable to move up the production ladder.
More critically, the United States appears to restrict the use of local content, effectively allowing the extraction of Asean resources without returning the benefits of local sourcing or enabling meaningful technology transfer.
This weakens both the income share of workers and Asean's capacity to benefit from spillovers, which typically arise from knowledge sharing, subcontracting and supplier development.
Without a strong local foundation, these indirect benefits cannot take root. This poses a threat to the region’s long-term development goals.
Local content is Asean’s most powerful weapon
Protecting and promoting local content must now be a core strategy for Asean’s resilience.
This is not about economic nationalism, but about building shared prosperity through internal strength and strategic integration. Local content enables countries to retain value, develop capabilities, and reduce reliance on volatile external markets.
This requires more than encouraging local sourcing. Governments should provide incentives for firms that use domestic inputs, foster regional collaboration among suppliers and innovation hubs, and reward companies that invest in local technologies and domestic employment.
At the regional level, Asean must identify and protect sectors with high indirect effects, industries that generate output while stimulating broader development through supply chain linkages.
Agriculture, electronics and transportation are key to inclusive growth. Supporting them through coordinated policy, infrastructure investment, and fair-trade practices will help ensure every Asean member shares in regional prosperity.
Long-term development challenges
In facing external shocks such as US tariff aggression, Asean cannot afford to act in isolation. A united front is essential to safeguard its economic vision. This includes rethinking trade agreements to ensure fairer terms for local industries, promoting joint industrial strategies with regional ownership, and strengthening SME participation in higher-value global supply chains.
In the long run, Asean must evolve from a passive investment recipient to an active architect of its economic future. This involves retaining control over local content, facilitating technology spillovers and designing policies that prioritise regional integration over foreign dependency.
If Asean fails to act, shared prosperity may remain out of reach. But by standing together, reinforcing internal linkages and reclaiming developmental levers, the region can weather the current crisis and build a more inclusive, resilient and self-sustaining future.
US tariffs may have disrupted Asean’s momentum, but coordinated vision and action can restore its path to prosperity.
The future direction of the China-Asean Free Trade Agreement in the Trump tariff era
The shared commitment among China and Asean members is crucial to insulate their economies from external volatility and foster intra-regional resilience.
Strategic realignment, such as streamlining customs procedures and digital trade facilitation, and enhancing investment protections to attract cross-border capital flows, could enhance economic integration between China and Asean countries.
Besides, integrating sustainability and labour protections into trade frameworks to enhance competitiveness is important.
This approach reinforces Asean’s centrality in regional affairs and positions the China-Asean Free Trade Agreement (Cafta) as a cornerstone of Asia’s post-globalisation trade architecture.
Yong Chen Chen is a Professor at the Faculty of Business and Economics, Universiti Malaya. The views expressed here are entirely the writer’s own.
The SEARCH Scholar Series is a social responsibility programme jointly organised by the South-East Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT).
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