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Emerging markets have found themselves between a rock and a hard place amid an escalating trade war, seemingly forced to choose between China and the U.S. But there’s another way: they’re backing themselves.



“Southeast Asian countries, including Malaysia, have to negotiate with the U.S. to come up with some sort of a soft-landing spot,” Ong Kian Ming, Malaysia’s former deputy minister of international trade and industry, told CNBC. “But at the same time, it doesn’t prevent us from working with other countries — not to screw the U.S., but to benefit ourselves.”



Southeast Asia is particularly vulnerable to an escalating global trade war. Goldman Sachs has cut its growth forecasts for Asian emerging markets, saying smaller export-oriented economies are the most exposed to the tariff turmoil.&nbsp;



The bank’s 2025 GDP forecast for Vietnam is now 5.3% — significantly lower than consensus estimates of 6.5% cited by Goldman. The bank expects Malaysia to grow by 3.8% (compared to 4.7%) next year, and Thailand to expand by 1.5% (compared to 2.7%).



Southeast Asian nations were among the hardest hit on U.S. President Donald Trump’s self-declared “Liberation Day.” They’re due to be hit with tariffs of up to 49% after a 90-day temporary reduction to 10% on all countries (bar China) is lifted.



It means the region faces a difficult balancing act as the U.S. is not its only strategic partner — China also plays a crucial role for medium-term growth and development objectives for many emerging Asian economies, according to Lavanya Venkateswaran, senior ASEAN economist at the OCBC Bank.&nbsp;



Chinese President Xi Jinping visited Vietnam, Malaysia and Cambodia earlier this month in an effort to promote Beijing as a pillar of stability and boost ties within the region. He also called on the Global South “to uphold the common interests of developing countries.”



And it appears to be happening.



UN Trade and Development (UNCTAD) Secretary-General Rebeca Grynspan told CNBC’s Squawk Box this month that intra-regional trade is growing.



“One interesting indicator that we have from the last year, in this century, is that South-South trade has already been growing faster than North-North trade,” she said. “So the acceleration of South-South trade, I think, will take a new dynamism because of the new trade policy of the U.S.”



Anwar Ibrahim, Malaysian prime minister and current rotating chair of ASEAN, echoed this sentiment, calling for more trade and greater economic integration within the region in a keynote speech at the ASEAN Investment Summit in early April.



<h2 class="wp-block-heading" id="h-no-easy-solutions-nbsp"><a></a>No easy solutions&nbsp;</h2>



While there are no “easy solutions,” emerging economies are expected to try different approaches in a bid to mitigate the impact of U.S. tariffs, according to Lavanya Venkateswaran,&nbsp;an economist at OCBC.



“In the near-term, the authorities will have to tap fiscal and monetary policy tools to provide counter-cyclical support to affected sectors of the economy.&nbsp;For the medium-term, the authorities understand the need to diversify trade and investment partners,” she said.



It helps that the so-called “China+1” strategy still holds in the medium-term, she added. Many export-oriented Southeast Asia economies were big beneficiaries of the strategy during the first Trump administration, receiving economic boosts as companies shifted production away from China to their shores.&nbsp;



In Cambodia, for&nbsp;instance, according to data from the World Bank, Cambodia’s exports of goods and services made up 55.5% of its gross domestic product in 2018, before Trump imposed his first China tariffs — by 2023, this figure had risen to 66.9%.



Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, agreed,&nbsp;saying that these emerging markets are more attractive than China as export manufacturing hubs in the long term.



“It’s also worth bearing in mind that these tariffs do nothing to eliminate the labor cost competitiveness of EM Asia ex-China economies (versus China), which will remain a big selling point over the long term to multinationals,” he told CNBC by email. “New supply chains won’t be created overnight.”

CNBC

Who Owns London’s (Privately Owned) Public Spaces?

How China Could Retaliate Against U.S. Tariffs

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Who Owns London’s (Privately Owned) Public Spaces?

How China Could Retaliate Against U.S. Tariffs

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