The ASEAN trade puzzle: Smart moves in a shifting landscape

To navigate the significant uncertainty caused by U.S. tariffs and enhance operational resilience, Vietnamese firms must prioritize supply chain agility by investing in digital integration, leveraging supply chain finance, and implementing early-warning systems to anticipate and mitigate disruptions, write Runa Baksi, head of Southeast Asia, global trade solutions at HSBC, and Surajit Rakshit, head of global trade solutions at HSBC Vietnam.

The global trade system is at an inflection point. Driven by a volatile mix of geopolitical tensions, technological shifts, and a renewed focus on national interests, the rules of the game are being rewritten.

Despite these headwinds, a curious paradox has emerged: global trade is not just surviving, but thriving. The first half of 2025 saw global trade volumes reach new highs, expanding approximately $300 billion, with a growth pace that's been rarely seen.

However, this surge isn't a sign of universal confidence. It is overwhelmingly driven by the "front-loading" of imports into the United States - a rush by businesses to get ahead of the newly imposed protectionist tariffs.

While trade flows into the U.S. have spiked, other key trade corridors, such as those from Asia to Europe, have barely deviated from pre-existing trends. This dynamic confirms that U.S. protectionist policies are not only the biggest factor reshaping trade flows but also a source of deep, systemic uncertainty.

The ASEAN story

Since the U.S. introduced "reciprocal tariffs" on April 2, foreign delegations, including those from ASEAN, have rushed to Washington, D.C., to negotiate trade deals. After months of intense negotiations, the situation appears to have stabilized somewhat. Almost every major ASEAN economy now falls into a similar 19-20% tariff bracket, though the concessions made to achieve this vary significantly.

Vietnam, a country long praised as a beneficiary of trade and foreign direct investment (FDI) diversion, received its own tariff verdict in early July, settling on a 20% rate. To secure this, Vietnam has offered a number of substantial concessions, including eliminating tariffs on all imported U.S. products, committing to significant purchases of U.S. aircraft and agricultural goods, and implementing stricter regulations to combat trade fraud and ensure proper rules of origin.

In the near term, this similar tariff environment across ASEAN provides a level playing field, potentially maintaining the competitive advantage of existing trade and FDI beneficiaries like Vietnam, Thailand, Philippines and Malaysia.

This may also offer some certainty for investors who have been hesitant since "Liberation Day." (The Liberation Day tariffs are a broad package of import duties announced by U.S. President Donald Trump on April 2, 2025 - a date he called "Liberation Day".) However, the tariff saga is far from over, as bilateral trade negotiations are still ongoing and many questions remain unanswered.

No doubt, the rise of protectionist trade policies from the U.S. presents a complex challenge for ASEAN, creating both short-term volatility and a long-term push for strategic reorientation.

In the near term, the region faces significant trade uncertainties as it is not easy to find alternative markets to replace the U.S., the world's top consumer. Some ASEAN nations initially responded to tariff threats with accelerated shipments, leading to temporary spikes in growth but also creating a sense of lingering uncertainty in the mid-term. To weather these near-term trade headwinds, ASEAN nations must demonstrate resilience and adaptability.

In the long term, however, the shift underscores the necessity for trade diversification. While the U.S. remains a crucial partner, ASEAN's broader trade strategy increasingly focuses on strengthening ties with other key partners like China, Japan, and South Korea, whose trade with the region collectively exceeds that of Europe.

Governments across the region are also pursuing negotiation over retaliation, boosting intra-ASEAN trade, and leaning into regional frameworks like the RCEP and CPTPP to bolster resilience, harmonize standards, and reduce their reliance on any single market.

This multi-faceted approach aims to preserve long-term trade relations while unlocking new opportunities in populous economies across the Middle East, Latin America, and India.

Key challenges for businesses in Vietnam

Vietnamese businesses are facing a complex set of challenges, beginning with the significant uncertainty caused by U.S. tariffs. The shift from an anticipated 46% tariff to a finalized 20% rate has led to extreme volatility, particularly for exporters in apparel, electronics and footwear, with some manufacturers, such as Samsung and Pegatron, initially increasing output to beat the tariff window while others, like LG, temporarily halted production due to delayed orders. This has forced companies to rethink their market exposure and seek new opportunities in regions like Europe and Japan.

Compounding this, a recent rollback of renewable energy subsidies for 173 wind and solar projects has raised investor confidence concerns, as this move risks undermining power reliability - a crucial factor for Vietnam’s manufacturing boom.

Despite a thriving FDI ecosystem, Vietnam's local upstream production has yet developed. Among Samsung's 103 core global suppliers, only 27 are located in Vietnam, and most of those are still foreign-owned firms. This deep dependency leaves the manufacturing base vulnerable and prevents the full capture of economic value.

Finally, navigating a complex regulatory environment, from licensing to tax administration, is considered a hurdle for all businesses operating in the country. These issues affect foreign investors, local SMEs and large corporates alike.

Opportunities beckon

To navigate this new and unpredictable landscape, Vietnamese businesses and policymakers must take proactive steps. Market diversification is crucial to reduce reliance on the volatile US market. Companies should actively explore and build demand in Europe, Japan, and other regional economies.

To enhance operational resilience, firms must prioritize supply chain agility by investing in digital integration, leveraging supply chain finance, and implementing early-warning systems to anticipate and mitigate disruptions.

Improved working capital management is also key, with a focus on optimizing payables and receivables financing to reduce Days Sales Outstanding (DSO) and extend Days Payable Outstanding (DPO).

Internally, companies should invest in digital infrastructure, using APIs and ERP integration to streamline treasury processes and digitize trade documentation for greater efficiency.

Given the energy policy risks, it is essential to strengthen energy and contract risk planning by hedging against potential policy shifts or adjusting operations to mitigate power supply issues.

Finally, businesses must streamline compliance and HR practices by simplifying approval workflows and strengthening internal governance to effectively navigate Vietnam’s complex regulatory environment.

The future of global trade may be fractured, but it is not stagnant. For Vietnam, the path forward lies not in reacting to every new policy twist but in building an inherently resilient, agile, and strategically diversified economy that can weather any storm.