Escalating US tariffs are casting a long shadow over Southeast Asia, with economists warning that the full economic impact on Asean nations could peak by 2026. Among the hardest hit are expected to be Singapore and Thailand, two trade-dependent economies in the region, as projections point to significant slowdowns or even contractions in their growth. Caught in the crossfire of a US-China trade war, Asean countries are scrambling to adapt to a rapidly shifting global economic landscape.
Tariff Shock: A Regional Slowdown Looms
The Asean-5 economies—comprising Singapore, Malaysia, the Philippines, Vietnam, and Indonesia—are facing a grim outlook as US tariffs threaten to disrupt trade flows. According to a recent projection by Bloomberg Economics, released on June 17, 2025, the region’s collective gross domestic product (GDP) growth is expected to decline from 4.5% in 2024 to 3% in 2025. If the tariffs persist, growth could plummet to a mere 1.5% by 2026, signaling a severe economic downturn for a region heavily reliant on exports.
Thailand and Singapore, both deeply integrated into global trade networks, are particularly vulnerable. Tamara Henderson, Bloomberg’s senior economist for Southeast Asia, highlighted the extent of the challenge, noting that Thailand’s exports account for nearly 70% of its GDP. With potential US tariffs as high as 36% looming, the country’s growth is projected to slip below 2% in 2025 and could contract outright in 2026 if the trade barriers remain in place. “Over 11% of Thailand’s GDP comes from merchandise exports to the US, particularly in electronics and chips” Henderson explained. She also pointed to disruptions in auto-supply chains and a faltering tourism recovery as compounding factors. 
Singapore, often regarded as a regional economic powerhouse, faces its own set of challenges despite a lower baseline tariff of 10%. With an export-oriented economy, about 6% of its GDP is tied to US-bound shipments, primarily in high-value sectors like semiconductors and pharmaceuticals. Henderson warned that Singapore’s growth could drop sharply from a robust 4.4% in 2024 to a contraction of around 1% by 2026 if tariffs persist. “Singapore is likely to take the largest hit to growth in the near-term from the tariff shock” she said, though she added a note of cautious optimism: “However, its agile and well-resourced government may allow the city-state to emerge with less scarring over the medium-term.”
Varied Impacts Across Asean
While Thailand and Singapore brace for significant fallout, other Asean-5 economies appear better positioned to weather the storm, largely due to their reliance on domestic demand rather than exports. Indonesia, for instance, sees only about 10% of its exports heading to the US, with total exports constituting just 25% of its GDP. Household spending, which accounts for around 50% of economic activity, serves as a buffer against external shocks. Similarly, the Philippines benefits from a tight labor market and a robust household sector, which are expected to sustain domestic spending and mitigate the impact of tariffs.
Yet, even these more insulated economies are not immune to broader ripple effects. Henderson cautioned that weaker global demand and reduced pricing power along supply chains could dampen investment and hiring across the region. Beyond direct trade impacts, the tariffs threaten to erode confidence in Asean as a stable hub for manufacturing and investment, a role it has cultivated in recent years as an alternative to China under the “China-plus-one” strategy.
Shifting Sands: Beyond China-Plus-One
The allure of Asean as a “China-plus-one” destination—where multinational companies diversify their supply chains away from China—has been a key driver of regional growth. However, the imposition of heavy US tariffs is eroding this competitive edge. Priyanka Kishore, lead economist at the policy consultancy Asia Decoded, addressed this challenge during the launch of a report on Asean’s economic outlook by the Institute of Chartered Accountants in England and Wales on June 12, 2025. She argued that Asean countries must urgently seek new opportunities to maintain resilience in the face of diminishing attractiveness as an alternative manufacturing hub.
Kishore pointed to China’s evolving role as a double-edged sword for the region. While China offers an alternative trade destination to the US, its rapid advancements in manufacturing pose a threat to Asean economies. “China is capital-intensive and mechanized; it is producing items at a fraction of the cost of that in a factory in Indonesia” she said. Moreover, Asean’s labor productivity has lagged at half the pace of China’s in recent years, further widening the competitive gap. To counter this, Kishore emphasized the need for regional cooperation focused on infrastructure reform and human capital development, including skills training and digitalization.
Henderson echoed this sentiment, suggesting that Asean’s future resilience hinges on identifying new competitive niches. “Finding these gaps will be the challenge. Perhaps these will be in services” she speculated. She highlighted Singapore’s potential advantage in this regard, citing its multilingual workforce, particularly its many Mandarin speakers, as a bridge between Western and Chinese markets.
China’s Economic Pivot: A Silver Lining?
Amid the challenges, some analysts see potential opportunities arising from China’s own economic transformation. The Chinese government has been aggressively working to shift its growth model toward domestic demand, aiming to bolster its middle class as the primary engine of economic activity. If successful, this pivot could create new avenues for trade and investment in Asean, particularly in sectors like tourism, logistics, and e-commerce.
Gary Tan, portfolio manager at Allspring Global Investments, noted that a wealthier Chinese middle class could drive cross-border activity in the region. “Regional hubs like Singapore could see increased activity” he said, pointing to the city-state’s strategic position as a gateway for such opportunities. For countries like Thailand, a boost in Chinese tourism could partially offset losses in other export sectors, though it remains uncertain whether this will be enough to counterbalance the tariff-induced downturn.
Navigating Uncertainty: Policy and Adaptation
As the tariff storm looms, Asean governments face the daunting task of navigating an increasingly complex global economic order. For Singapore, the government’s proactive approach and substantial resources offer a potential lifeline. Investments in innovation, workforce retraining, and diversification into high-growth sectors like technology and services could help mitigate the immediate impacts of trade disruptions. Thailand, meanwhile, may need to double down on efforts to revitalize tourism—a sector still recovering from pandemic-era losses—while seeking alternative markets for its electronics and automotive exports.
Across the region, the need for cohesive policy responses is clear. Infrastructure development, often a cornerstone of economic resilience, will be critical to maintaining Asean’s appeal to investors. Digitalization, too, offers a pathway to modernize industries and enhance productivity, though it requires significant investment and long-term commitment. Kishore’s call for human capital development underscores the importance of equipping workforces with the skills needed to compete in a mechanized, technology-driven global economy.
Yet, the road ahead is fraught with uncertainty. The trajectory of US-China relations, the duration of the tariffs, and the pace of China’s domestic economic reforms all remain unpredictable variables. For Asean, balancing these external pressures with internal reforms will be a delicate act. The region’s ability to adapt will determine whether it can emerge from this period of turbulence with its economic standing intact.
A Testing Time for Asean’s Economic Future
The coming years will test Asean’s economic mettle as never before. Singapore and Thailand, in particular, stand at a crossroads, with projections of stagnation or contraction by 2026 painting a sobering picture. While some economies in the region may fare better due to domestic strengths, the interconnected nature of global trade means no country is entirely insulated from the fallout.
As policymakers, businesses, and communities grapple with these challenges, the search for new opportunities and competitive edges takes on renewed urgency. Whether through regional cooperation, strategic pivots to service-based industries, or leveraging China’s evolving economic landscape, Asean must chart a path forward amid unprecedented headwinds. The stakes are high, and the outcomes remain far from certain.
