Southeast Asia Global Relations Outlook Part 2: U.S. and China
Part II of this series situates ASEAN within an increasingly fragmented global environment in which engagement with major external partners is becoming more conditional, differentiated, and strategically consequential. The era of largely frictionless integration is giving way to one defined by tariffs, regulatory standards, supply-chain recalibration, and selective security expectations. As global powers recalibrate their external strategies in response to domestic pressures and geopolitical competition, Southeast Asia has emerged not as a passive arena but as a focal point where economic access, strategic influence, and policy alignment intersect. The following sections examine how key partners—the United States, China, Japan, the European Union, South Korea, India, the GCC, and partners in the ‘Global South’—are reshaping their engagement with ASEAN in 2026, and what this evolving external landscape means for the region’s capacity to sustain agency under constraint.
The full Southeast Asia Global Relations Outlook 2026 report will be published on the website soon.
United States: Tariffs, Local Content, and Strategic Conditionality
US Strategic Approach to ASEAN
Developments over 2025 clarified that U.S. engagement with Southeast Asia is being conducted primarily through selective bilateralism rather than ASEAN-centered architecture.[1] Progress in U.S.–ASEAN relations was uneven and concentrated on a narrow set of countries and issue areas, while region-wide economic frameworks remained shallow and politically contingent. Economic initiatives were treated as flexible bargaining instruments rather than durable commitments, reinforcing perceptions among Southeast Asian governments that U.S. engagement is reversible and closely tied to domestic political cycles in Washington.
A defining feature of this approach has been the expanded scrutiny of partners’ broader policy choices. U.S. engagement increasingly extended beyond trade and security into assessments of domestic regulation affecting American firms, labor and immigration policies, the substance of intra-ASEAN sectoral arrangements, and engagement with alternative groupings such as BRICS. Bilateral relationships were evaluated holistically, with market access, regulatory decisions, and foreign-policy positioning implicitly linked. The central lesson from 2025 is that U.S. engagement with ASEAN now prioritizes leverage and discretion over institutional leadership, setting the context in which economic pressure is applied.
Tariffs and Economic Leverage
Within this strategic context, tariffs have become the United States’ most direct instrument of economic leverage over ASEAN. For 2026, the risk of broad-based or sector-specific tariffs is likely to no longer treated as a contingent shock but as a standing policy tool that can be applied selectively. Persistent trade surpluses—particularly in Vietnam, and to a lesser extent Malaysia and Thailand—have increased exposure, turning export success into a political vulnerability as trade balances are increasingly framed as evidence of unfairness rather than integration.
Tariffs are reinforced by intensified trade scrutiny. U.S. authorities have expanded investigations into transshipment, rules-of-origin compliance, and the use of Chinese inputs in ASEAN-manufactured exports, particularly in strategic sectors such as electronics, electric vehicles, solar equipment, and steel. Manufacturing relocation from China into Southeast Asia has therefore not insulated ASEAN economies from pressure; instead, it has increased the likelihood of targeted measures. In effect, supply-chain diversification has produced a “success penalty,” where export growth raises, rather than reduces, the risk of U.S. action.
Local and allied content requirements further condition market access. Thresholds of 50–60 percent local or allied content increasingly function as de facto alignment filters, privileging supply chains compatible with U.S. industrial and security priorities. While more industrialized ASEAN economies may partially adapt, these requirements raise costs, narrow sourcing options, and heighten compliance risks, while less developed members face exclusion from higher-value segments of U.S.-oriented production networks. Legal challenges in Washington may constrain specific tariff actions, but they do little to reduce overall uncertainty, reinforcing tariffs and scrutiny as flexible instruments of leverage rather than predictable trade rules.
Implications for ASEAN in 2026
For ASEAN, the cumulative effect of the U.S. approach in 2026 is likely a narrowing—but not elimination—of strategic room for maneuver. Southeast Asian states are not simply reacting to U.S. pressure, nor are they making binary alignment choices. Instead, they are exercising constrained agency, adjusting policies and engagement tactics to manage exposure while preserving flexibility. This has involved carefully sequencing commitments, seeking exemptions or waivers where possible, and avoiding moves that could trigger heightened scrutiny, particularly in sensitive trade and industrial sectors.
A notable adjustment has been the diversification of engagement channels within the United States. ASEAN governments have increasingly invested in outreach beyond the White House, engaging government agencies, Congress, state governments, and non-government stakeholders to navigate a fragmented policymaking environment. While this has enabled tactical gains and issue-specific accommodations, it has also raised transaction costs and underscored the asymmetry of the relationship. Access to the U.S. market and policy space is increasingly negotiated across multiple fronts, favoring actors with greater administrative capacity and political capital.
At the regional level, these dynamics risk weakening ASEAN centrality. The U.S. preference for bilateral engagement, combined with differentiated exposure to tariffs and local content requirements, places uneven pressures on member states and complicates collective positioning. More industrialized economies are better able to adapt, while others face rising risks of marginalization.
For ASEAN as a whole, the challenge in 2026 will be to balance pragmatic adaptation to U.S. leverage with efforts to sustain regional cohesion, diversify external partnerships, and prevent conditional engagement from translating into long-term strategic dependence.
China: Planning Cycles, Trade Deepening, and Security Friction
China’s Strategic Approach to ASEAN
In contrast to the volatility and policy reversals that increasingly define U.S. engagement, China’s approach toward ASEAN in 2026 is likely to be characterized by continuity, predictability, and long-horizon planning. Beijing’s regional strategy is anchored in formal planning cycles, institutionalized economic agreements, and sustained diplomatic engagement, allowing ASEAN governments to anticipate policy direction even when frictions persist. This consistency has reinforced China’s position as a relatively more reliable economic partner at a time when U.S. commitments are widely perceived as contingent on domestic political cycles.
China emphasizes economic embedding rather than discretionary leverage. Through trade agreements, investment, infrastructure finance, and regulatory coordination, Beijing has deepened ASEAN’s integration into China-centric production and consumption networks without demanding explicit political alignment. Engagement is framed in support of ASEAN centrality while influence is exercised through dense bilateral channels. For ASEAN, this model offers planning certainty and material benefits, even as it gradually increases structural dependence and constrains long-term strategic flexibility.
China’s 15 Five-Year Plan (2026-2030)
China’s 15th Five-Year Plan (FYP), commencing in 2026, could signal a new phase of strategic adaptation in response to slower growth, technological containment, and external uncertainty. The Plan places clear emphasis on building a “modern industrial system” anchored in technological self-reliance, large-scale application of frontier technologies, and economic security. Priority sectors include advanced manufacturing, semiconductors, artificial intelligence, new materials, biomanufacturing, and green technologies, with a strong focus on translating innovation into scalable production rather than headline breakthroughs. At the same time, the Plan reinforces high-quality growth objectives by strengthening domestic demand, upgrading traditional industries, and embedding decarbonization and energy security into industrial policy.
For ASEAN, these priorities will shape both demand patterns and investment flows. China’s push for industrial upgrading and green manufacturing will sustain demand for intermediate goods, components, and low-carbon inputs produced in Southeast Asia, particularly in electronics, machinery, and clean-energy supply chains. The emphasis on resilience and “trusted” production networks is also likely to accelerate outward Chinese investment into neighboring economies that can serve as complementary manufacturing bases and supply-chain stabilizers. ASEAN economies with established industrial capacity and infrastructure are best positioned to benefit from this dynamic, while others may struggle to attract higher-value integration.
At the same time, the plan deepens structural asymmetries. As China reduces reliance on foreign technology while consolidating control over standards, platforms, and capital, ASEAN’s role risks becoming increasingly functional rather than autonomous. Greater exposure to China-centric demand cycles, investment decisions, and regulatory norms may limit diversification options over time, even as short-term economic gains accrue. The 15th Five-Year Plan thus reinforces a central trade-off for ASEAN in 2026: closer integration with a stable and predictable economic partner, alongside rising long-term dependence shaped by China’s domestic strategic priorities.
Deepening Economic Integration: ACFTA 3.0
The implementation of the ASEAN–China Free Trade Area 3.0 (ACFTA 3.0) reflects a strategic choice by ASEAN governments to manage, rather than resist, an already deep level of economic integration with China. While concerns over the influx of Chinese goods and competitive pressure on domestic industries are widespread across Southeast Asia, ASEAN policymakers judged that disengagement or delay would not meaningfully reduce import penetration. Chinese intermediate goods, capital equipment, digital platforms, and logistics networks are already embedded across ASEAN economies. In this context, ACFTA 3.0 was seen as a way to bring an existing reality into a rules-based framework, giving ASEAN at least some influence over the evolving terms of integration.
ACFTA 3.0 marks a qualitative shift from tariff liberalization toward rule-making in areas such as digital trade, e-commerce facilitation, and green and low-carbon supply chains. These provisions align closely with China’s 15th Five-Year Plan and open channels for ASEAN firms to access growth areas prioritized by Beijing, including services, agriculture, and low-carbon manufacturing inputs. For export-oriented ASEAN economies facing rising uncertainty in U.S. and EU markets—due to tariffs, local content rules, and regulatory barriers such as Carbon Border Adjustment Mechanism (CBAM) and the European Union Deforestation Regulation (EUDR)—securing predictable access to Chinese demand was viewed as an important hedge, even as import competition intensified at home.
At the same time, ASEAN governments were conscious of the risks. Deeper reliance on Chinese platforms, standards, and financing mechanisms increases the likelihood of regulatory and technological lock-in, particularly in emerging digital and green sectors. ACFTA 3.0 therefore represents a lowest-common-denominator outcome: it preserves ASEAN unity and secures concessions at the regional level, while shifting the burden of adjustment—through safeguards, industrial policy, and SME support—to national governments. The agreement underscores a broader ASEAN strategy in 2026: absorbing pressure through institutionalization rather than confrontation, even as domestic adjustment costs rise and long-term dependence risks deepen.
South China Sea Escalation Risks
Maritime tensions in the South China Sea are not new, but the strategic context in 2026 has shifted in ways that raise their significance for ASEAN. What distinguishes the current period is the much tighter coupling between security risk and economic integration. As China deepens long-term economic embedding through its 15th Five-Year Plan and ACFTA 3.0, grey-zone maritime pressure no longer sits alongside economic engagement as a parallel track—it increasingly coexists within it. This integration–coercion paradox raises the economic costs of disruption and narrows ASEAN’s margin for response compared with earlier phases of tension.
The stakes are also higher because energy security considerations have intensified. For Vietnam and the Philippines in particular, offshore gas development has become more central to power generation, fiscal planning, and energy transition strategies. Disruptions to exploration or development now carry broader macroeconomic and political consequences, rather than remaining confined to sovereignty disputes. At the same time, sustained maritime pressure increases insurance costs and operational risks along key sea lanes, with spillover effects for regional trade and investor confidence that extend beyond claimant states. These risks are compounded by the growing strategic importance of undersea data cables traversing the South China Sea, which underpin regional digital connectivity, financial transactions, and cloud-based services. While rarely the focus of public disputes, their vulnerability to disruption further raises the systemic economic costs of sustained maritime tension.
ASEAN’s collective capacity to manage these risks has weakened relative to previous periods. Greater economic reliance on China, wider divergence in member states’ exposure and threat perceptions, and fewer external actors willing to underwrite ASEAN cohesion have reduced the bloc’s bargaining leverage. In this environment, China enters 2026 with greater confidence and clearer long-term priorities, increasing the likelihood that maritime pressure is sustained and normalized rather than episodic. For ASEAN, the South China Sea has thus shifted from a chronic strategic irritant to a more systemic regional risk—one that interacts directly with economic dependence and constrains strategic options at a time when alternatives are narrowing.
[4] https://www.nationthailand.com/business/economy/40053551
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